Just about every real estate agent and loan officer I know is incredibly busy these days, as record-low interest rates, a swell of buyer demand, and a considerable shift from city to suburbs is driving a housing market boom.
But, let’s face it, there are good years and bad years in real estate just as in any cyclical business, and just because you’re earning well into six figures this year doesn’t mean the deals will always come as easy.
Therefore, whether it’s the hottest seller’s market or we see the point where REOs and short sales dominate once again, it’s crucial to take advantage of every legal and ethical tax deduction if you sell real estate or home loans for a living.
After all, it’s not what you make, but how much you keep that matters!
So, today I enlisted CPA Jose Ramirez of Advanced Tax Advisors to outline 10 common tax deductions for real estate agents and loan officers:
1. Commissions Paid Out
Have you paid a portion of your commission to referring agents, a buyer’s agent, or anyone else on your team? Those are deductible!
2. Broker and Desk Fees
Unless you’re at a 100% commission split, you’re paying some form of broker or desk fees to your real estate firm, and those can be tax deductible. Just be very careful about writing off desk fees from your brokerage AND a home office deduction, which can be a red flag for the IRS. There are different rules to follow when having multiple offices.
3. Training and Education Expenses
If you’re investing in your education and skills, those costs may be deductible. For instance, traveling to seminars or training conferences can offer a host of deductions, but there are caveats. It must be real estate related (of course) and the training must maintain or enhance a skill in your field.
4. Advertising, Marketing, and Promotional Expenses
This is a big one for most agents, with signage, photography, websites, digital marketing, and even purchasing leads that are commonly deducted. Even staging costs are tax deductible!
5. Licensing, Memberships, Professional Designations, and Insurance
From MLS and Realtor membership fees to E & O insurance, there are plenty of write-offs for the average agent.
The typical Realtor gives plenty of gifts every year, from closing gifts to housewarming gifts, and even gift cards and holiday presents. But beware that the IRS has specific requirements for gift giving, such as that you can deduct no more than $25 for the cost of a business gift, a “floor” of $4.00 or less for gifts with your logo like pens, golf balls, etc., and the cost of engraving, shipping, and wrapping not included in the $25 limit.
7. Automobile Mileage
No one drives around town more than Realtors, and a portion of your mileage is deductible. This deduction can be significant, particularly if you put 10,000 miles or more on your car annually.
8. Home Office
Are you writing offers from home, using the computer in your designated home office, and using a home printer or fax for your real estate business? You’re due a home office deduction, just like most business owners who truly operate from home.
9. Meal Expenses
If you’re not taking clients, referral partners, and team members out for food and drinks, you’re not doing this whole real estate thing right! As long as it’s truly for business purposes, breaking bread is deductible up to 50% of your bill, including tax and tips.
10. Business Items, Tools, and Stationary Expenses
Any material items you use to perform the day-to-day tasks of your job may be deductible or depreciable, such as office supplies, copies and faxing expenses, furniture, a portion of your personal cell phone bill, and even your computer.
Remember that there are very specific IRS rules for tax deductions, so refer to IRS Publication 535 and schedule a consultation with your tax planner for details!
P.S. Thank you, Jose Ramirez of Advanced Tax Advisors for the information!