A Practical Tax Deductions Guide for Real Estate Agents

Real estate agents generally operate as independent contractors for federal tax purposes rather than as employees. As a result, agents typically report income and business expenses on Schedule C (Form 1040) and pay self-employment tax on their net earnings. This classification allows agents to deduct ordinary and necessary business expenses incurred in earning commission income.

Because compensation earned for services performed as a real estate agent is active business income, it is not subject to the passive activity loss rules that apply to rental real estate and other investment activities, as outlined in IRS Publication 925 (Passive Activity and At-Risk Rules).

Careful tracking of deductible expenses throughout the year, supported by proper documentation, can significantly reduce taxable income and improve cash flow. The following is a practical overview of the most commonly claimed tax deductions for real estate agents, based on current IRS guidance.

1. Vehicle and Mileage Expenses

Transportation is often one of the largest deductible expense categories for real estate agents due to frequent travel for showings, client meetings, inspections, and closings.

Agents may deduct vehicle expenses using one of two IRS-approved methods:

• Standard mileage rateThe IRS publishes an annual business mileage rate that allows agents to deduct a fixed amount per business mile driven. This method requires contemporaneous mileage logs showing the date, destination, miles driven, and business purpose.

• Actual expense methodAlternatively, agents may deduct the business portion of actual vehicle operating costs, including fuel, insurance, maintenance, repairs, registration, and depreciation.

Commuting between home and a regular workplace is not deductible.

IRS reference: Publication 463 (Travel, Gift, and Car Expenses)

2. Home Office Deduction

Agents who regularly and exclusively use a portion of their home for business may qualify for the home office deduction.

The IRS allows:

• A simplified option, based on a prescribed dollar amount per square foot (up to a maximum), or

• A regular method, based on actual expenses such as mortgage interest or rent, utilities, insurance, repairs, and depreciation.

To qualify, the space must be used exclusively for business and generally serve as the agent’s principal place of business.

IRS reference: Publication 587 (Business Use of Your Home)

3. Marketing and Advertising Costs

Marketing expenses incurred to promote services and generate business are generally deductible in the year incurred when they are ordinary and necessary.

Common deductible marketing expenses include:

• Website development, hosting, and maintenance

• CRM systems and lead-generation platforms

• Online and social media advertising

• Business cards, signage, and printed materials

• Listing photography, videography, staging, and promotional campaigns

4. Professional Fees and Licenses

Expenses required to maintain licensing and operate a real estate business are generally deductible, including:

• State licensing and renewal fees

• MLS, REALTOR® association, and local board dues

• Errors & Omissions (E&O) insurance

• Brokerage desk and franchise fees

• Accounting, tax preparation, and legal service fees

5. Office, Technology, and Communication

Agents incur ongoing operational costs that are deductible when used for business, including:

• Business phone and internet service

• Computers, tablets, printers, and peripherals

• Software subscriptions (CRM, transaction management, productivity tools)

• Office supplies and cloud-based services

Only the business-use portion is deductible when items are used for both personal and business purposes.

6. Travel Expenses (Away From Home)

Travel expenses are deductible when an agent is traveling away from their tax home for business purposes. According to the IRS, you are considered to be traveling away from home if:

• Your duties require you to be away from the general area of your tax home substantially longer than an ordinary day’s work, and

• You need to sleep or rest to meet the demands of your work.

Travel expenses are the ordinary and necessary costs of traveling away from home for business.

Deductible travel expenses may include:

• Airfare, train, or other transportation

• Lodging

• Business-related ground transportation

• Meals (subject to applicable limits)

If travel includes both business and personal activities, only the business-related portion of expenses may be deducted.

Your tax home is generally your regular place of business, not your personal residence. If you are considered an itinerant (having no regular place of business or residence), travel expenses are not deductible.

IRS reference: Publication 463, (Travel, Gift and Car Expenses)

7. Business Meals

Business meals may be deductible when:

• There is a clear business purpose

• The agent (or an employee) is present

• The expense is properly documented

Under current IRS rules, 50% of qualifying business meal expenses are deductible. Entertainment expenses are not deductible.

Meals must be directly related to the active conduct of business or associated with a business discussion.

IRS reference: Publication 463, (Travel, Gift and Car Expenses)

8. Business Gifts

If you give gifts in the course of your real estate business, you may be able to deduct part of the cost.

$25 Limit

The IRS allows a deduction of up to $25 per recipient per year for business gifts given directly or indirectly to each person.

Key rules include:

• Gifts to a company intended for a specific individual are treated as gifts to that individual

• Gifts to a client’s family member are generally considered gifts to the client unless there is a bona fide independent business relationship

• If spouses or partners both give gifts, they are treated as one taxpayer for the $25 limit

Incidental Costs

Incidental costs such as engraving, packaging, insurance, and shipping are not included in the $25 limit, provided they do not add substantial value to the gift.

Items Not Subject to the $25 Limit

• Promotional items costing $4 or less with your name permanently imprinted and widely distributed (e.g., pens, mugs)

• Signs or display materials used on the recipient’s business premises

IRS reference: Publication 463, (Travel, Gift and Car Expenses)

9. Education and Professional Development

Expenses incurred to maintain or improve skills required in the real estate profession are generally deductible, including:

• Continuing education courses

• Industry conferences and seminars

• Licensing and designation fees

• Subscriptions to real estate publications

Education must relate to the agent’s current business and not qualify the agent for a new trade or profession.

10. Other Common Deductible Business Expenses

Depending on the nature of the practice, agents may also deduct:

• Business bank and credit card fees

• Notary and document preparation fees

• Professional subscriptions and data services

Certain assets with a useful life beyond one year may need to be depreciated rather than deducted in full.

IRS reference: Publication 535 (Business Expenses)

Recordkeeping and IRS Compliance

The IRS requires adequate records to substantiate deductions. Best practices include:

• Mileage logs with dates and business purposes

• Separate business bank and credit card accounts

• Organized retention of receipts and invoices

Strong documentation reduces audit risk and improves clarity at tax time.

Conclusion

Real estate agents have access to a wide range of legitimate business deductions when operating as self-employed professionals. Vehicle and mileage expenses, home office costs, marketing, professional fees, travel, meals, and business gifts are among the most commonly claimed deductions. Because agents’ commission income is active income—not subject to passive activity loss limitations—these deductions directly reduce taxable income when properly substantiated.

Year-round planning and regular consultation with a CPA are far more effective than last-minute tax preparation. Proactive tax planning ensures deductions are maximized, compliant with IRS rules, and aligned with long-term business goals.