Real Estate Agent

Tax Deductions Checklist

ACCOUNTING, BOOKKEEPING, TAX

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Real estate agents are like any other business — they make income and pay expenses. 

 

Businesses share similar costs, while the rest are unique to each industry. 

 

That’s why everyone has a different chart of accounts in their bookkeeping file.

Chart of accounts for real estate agents

 

The list of accounts tracks income, expenses, liabilities, and assets. 

 

It's best to tailor the chart to the life of a real estate agent. You’ll streamline your bookkeeping tasks.

 

Well-structured accounts also let you run reports you can count on for critical financial decisions. 

  • How much are you earning from residential versus commercial commissions? 

  • What are you spending on advertising by medium (e.g., online, print, billboard)? 

Without accurate figures and information, you can’t answer these questions.

 

Lousy data also affects your ability to prepare your real estate agent taxes.

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Real estate agent tax deductions checklist

 

You make a living from commissions.

 

You spend money on desk fees, broker commissions, MLS, NAR, advertising, marketing, a website, and more.

 

Desk fees

 

Be careful with your desk fees because they’re not always for monthly rent.

 

Your broker might include marketing and insurance. If that’s the case, get a breakdown of the fee they’re charging you. 

 

In your accounting software or spreadsheet, split the transaction into its appropriate pieces. 

  • Let’s assume you have a $100 desk fee ($50 rent, $25 marketing, $25 insurance). 
  • You record it in three expense categories, not one. 

Why do you need to follow this structure?

 

The IRS doesn’t require a real estate agent to send a 1099-MISC to their broker for rent. But you may need to do for marketing services if it surpasses $600 per year. 

Broker commission split

 

Most agents record their commission checks using the after-split value. It’s best to enter the pre-split figure in your bookkeeping. 

 

For each real estate sale, set up an accounts receivable invoice with what you expect to earn and subtract the broker commission rate. 

 

When your broker cuts the check, you can confirm it’s the correct amount.

 

By doing it this way, you can track what you’re spending on broker fees  —  maybe it’s time to renegotiate your contract or move on to a new broker.

 

Referral fees

 

Are real estate agent referral fees tax deductible? Yes. 

 

Sometimes you share the commission with another realtor because they’ve brought the client to the table. 

 

Although many agents don’t enjoy paying a referral fee, it’s better than earning nothing.

 

Real estate agent gift deductions

 

You can also deduct the cost of a gift for your client after buying or selling a house.

 

The IRS places a $25 limit per client, per tax year. 

UNIQUE CLIENT GIFT

Helps track major home improvements and calculates basis. It's a helpful tool if you don't qualify (or exceed) the primary residence exclusion.

Want to learn how to get around the IRS gift limit?

 

It’s one of our tax strategies for real estate agents (and other business owners).

 

Get our small business accounting book and turn to Chapter 14.

 

Last Updated: 7/1/20

DISCLAIMER

Please consult with your accountant, attorney, and financial advisor before implementing any information displayed on this website. DIY research does not replace the advice of a licensed professional who has thoroughly reviewed your file.


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