Tax Write-Offs for Real Estate Agents in 2020
2021 is finally here and tax season is right around the corner. For real estate agents, that means not only paying your final quarterlies for the year but also organizing your tax write-offs.
To help you get organized and understand some of your options, we sought the advice of a trusted tax professional, Chad Pavel, a Certified Professional Accountant (CPA) and Managing Partner with Pinewood CPA Group in Stamford, CT, and NYC.
Read these tips over so that you get a sense of what you can do to reduce your tax bill. However, before you do anything with your potential write-offs, be sure to speak with a trusted tax professional about your unique situation.
6 tax write-offs for real estate agents to consider
1. Licensing costs.
The first big write-off category for real estate agents is licensing costs. This can include your membership dues for the National Association of REALTORS® (NAR), as well as your state REALTOR® organization, your local MLS system dues, and any other required fees.
However, in addition, if you also earned any continuing education (CE) credits this year, you can also write off the cost of those classes. Similarly, if you are going for additional licensing, such as your broker’s license or any of NAR’s specialty designations, you can write off those costs as well.
2. Vehicle expenses.
Next, Pavel suggests tracking and writing off your vehicle expenses. In particular, you can do so in one of two ways. The first method is by taking a set deduction of 57.5 cents per mile (the amount allotted by the IRS for 2020) driven beyond your normal commute.
Here, the phrase “beyond your normal commute” is key. It means that, while your daily drives to the office likely won’t count for a deduction, any mileage that you compile while you’re going to and from showings is acceptable.
Alternatively, if you would prefer not to take a per-mile deduction, you can take individual deductions for a portion of each auto-related expense. In this case, you are able to write off a portion of your gasoline, maintenance, cleaning, and repairs.
3. Marketing and advertising write-offs for real estate agents.
Next, it’s time to take a look at your marketing and advertising costs. Notably, this category is fairly broad. It covers nearly anything that you can think of that would bring new potential clients to your business.
With that in mind, here is a list of the things that you could potentially have the ability to write off:
- Paid lead sites like Zillow or Trulia
- Direct mailing costs
- Pop-by gifts
- Marketing agency fees
- Expenses from hiring freelancers to create blog content and YouTube videos or manage your social media
- Expenses incurred while hosting any client appreciation events
- 50% of any client meals
4. Listing expenses.
Technically, listing expenses could be included with the rest of your marketing and advertising costs. However, according to Pavel, some agents like this category to be separate and on its own. To that end, here is a list of some of the costs that would fall under this category of tax write-offs for real estate agents:
- Real estate photography fees or fees for creating video tours of the listing
- Home staging or interior design fees
- Refreshments for open houses
- Balloons and signage for open houses
- Broker’s open lunches
- Promotional materials for the listing
5. Administrative costs.
Once you’ve taken all of the above deductions, the next thing to consider is your administrative costs. The category of “administrative costs” covers all of those costs that are necessary to keep your business up and running. While this is a broad category, it’s an important one to keep in mind.
Here is a selection of expenses that could potentially fall under your administrative costs:
- Desk fees or a home office deduction
- Office supplies, including everything from pens to computers, and color copies
- A portion of your monthly cell phone bill
- Your business insurance costs, including general business insurance and errors and omissions (E&O) insurance
- The fees for any software that you use like a CRM system or Microsoft Office
6. Retirement costs.
Meanwhile, it is possible to deduct your retirement savings from your tax bill as well. However, how you do it will depend on what type of retirement account you’ve set up for yourself.
That said, if you do decide to go this route, you are absolutely going to want to speak to a tax professional about the details. Each plan has different contribution limits and only a professional can help you decide which type of plan will work best for you.
The bottom line on tax write-offs for real estate agents
Tax write-offs can be an efficient way for real estate agents to lower their yearly tax bill. However, the ins and outs of tax preparation are complicated and often depend on your unique set of circumstances.
With that in mind, if you have specific questions regarding what you can and cannot write off on your tax return, your best bet is to reach out to a qualified tax professional in your area.