Real Estate Agent Taxes - Tax Tips From The CE Shop (2024)

Tax Tips for Real Estate Agents

As a new real estate agent, paying taxes might be a slightly confusing experience. Whether you're working at a brokerage or you’re a self-employed agent with your own business, this guide will help you understand taxes for real estate agents and answer the question, “How do real estate agents file taxes?”

Our tax tips for real estate agents below will also outline deductions that you should know about to maximize your return - but don’t worry, it won’t be a taxing read!Agents looking to thrive in real estate: our Kickstarter Package offers invaluable insights and strategies for professional growth.

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1. Don't Overlook Your Deductions

Real estate agents typically qualify for a range of deductions. It's easy to overlook these deductions considering that you have plenty of expenses to write off.

We'll dig into real estate agent tax deductions in greater depth later, but for now, remember to track your potential deductions throughout the year to ease the stress that Tax Day brings.

2. Keep Detailed Spending Records

Between buying gas to drive to your open houses and meetings over lunch with your clients, you’re going to spend money in your role as a real estate agent.

Be sure to keep detailed records of what you're spending along the way. Even if it's a one-time expense, like hiring someone to clean a listing, you’ll need to add it to your expense sheet.

Many apps are available to help you keep these records without using paper. However, any form of recordkeeping is fine as long as it’s well-organized.

3. Save for Retirement

While it’s tempting to focus on what you’re earning now, remember to allocate a portion of your income toward your eventual retirement. That way, when you’re ready to leave the heyday of your successful real estate career behind, you have money available to support your retiree lifestyle. After all, those hard caramel candies that grandkids love to throw away aren’t going to buy themselves!

4. Meet Deadlines

Always meet your tax deadlines to avoid penalties. According to TurboTax, “late-filing penalties can mount up at a rate of 5% of the amount due with your return for each month that you’re late.” While the IRS might allow you to set up a payment plan if you can't pay your full tax bill, it's best to save yourself the stress and pay your estimated taxes every quarter.

5. Hire a Tax Professional if Necessary

You might be able to file your taxes yourself, especially if you’re used to filing real estate agent taxes. However, based on the average expenses and other complexities of working in this industry, you may be better off hiring a professional certified public account (CPA). Ask your fellow agents for a referral while researching local CPAs to determine which CPA might fit your needs at the best price.

Did You Know?

If you can’t submit your taxes on time, you can always file for an extension. The IRS can approve for an extended deadline, though you have to file your request before Tax Day. For more information, check out the IRS’ website.

Self-Employed Agents vs. Employees

Are you planning to work for a brokerage as an employee, or will you become a self-employed agent? Either scenario has many advantages, but how does each factor into real estate agent taxes?

A self-employed agent, also called an independent contractor, will have to file a 1040 form. These agents also file Schedule C and Schedule SE forms, the latter of which covers the self-employment tax. Since self-employment tax is still at 15.3%, self-employed agents pay more taxes in the long run than employee agents.

In many cases, agents are still considered self-employed, no matter if you have a contract with your brokerage. It all depends on if they consider you an employee. If you're not receiving regular wages and only earn money from sales, then you're definitely an independent contractor. Employee agents, on the other hand, have their taxes automatically withheld by their employer - which can make for a more straightforward filing experience.

Real Estate Agent Deductions

A tax deduction is a business expense that you can write off, giving you a chance to reduce your tax bill. That’s why it’s so important to track your potential deductions throughout the year - and to help, we’ve outlined the most common real estate agent tax deductions below.

Continuing Education and Training

Each state requires a specific number of Continuing Education credits to be completed in order to maintain your real estate license - which is good, because the best real estate agents never stop learning.

You can take award-winning CE courses directly through The CE Shop to fulfill your CE requirements while enjoying a diverse range of topics. And the best part? You can write off your CE courses and other training as a tax deduction.

Marketing and Advertising Expenses

Investing money in marketing and advertising is essential to stay competitive as an agent. All of that also takes money, which means significant tax write-offs.

Be sure to check out our marketing and advertising resources for tips and tricks on maximizing your marketing budget. The more you know, the more you can invest wisely to generate the most effective tax deductions.

Paid Commissions

Getting a commission is one of the best parts of working as an agent in real estate. Those commissions are obviously taxed, but what about commissions you pay as an agent to another agent or an employee?

You can take a deduction in this circ*mstance since paying out a commission is considered an expense. Unfortunately, far too many agents overlook this particular deduction. Commissions can also add up fast when they’re split between the various professionals involved in the property sale.

Office Supplies

Don't overlook all the supplies you have to buy for your office. All of those pens, pencils, and paperclips can certainly add up to hundreds of dollars - and these business expenses can certainly be deducted from your tax bill.

Memberships, License Fees, and Insurance

Fees associated with licensing, membership to professional organizations, and paying insurance premiums could add up to thousands of dollars. Be sure to track this information so you can deduct these costs from your taxes.

And if you’re curious how much you could be saving (or spending, if you have yet to join any professional organizations), read up on our guide to real estate fees while considering the cost of membership for The National Association of REALTORS®.

Client Gifts

That swanky outdoor barbecue grill that you bought for your client’s closing gift doesn’t have to burn a hole through your pocket - at least, it doesn’t have to burn all the way through. While the IRS lets you deduct client gifts from your tax bill, bear in mind that you’re limited to a maximum deduction of $25 when it comes to writing off these gifts. Be sure to keep all the receipts from your client gifts to maximize this deduction.

Real Estate Software Tools

You're going to need software to keep your real estate agent career thriving. Buying these tools could cost a small bundle. You can write off this expense as well, though you’ll need to keep receipts from each purchase. If you bought the software online, keep a digital receipt handy.

Standard Auto

Use of your car to travel between listings should become a standard deduction that you take when filing taxes for real estate agents. Car maintenance costs may be deductible as well, so bear that in mind before you throw out any related receipts.

Home Office or Desk Fees

Your brokerage might charge a desk fee to work in their location. Deduct that, plus any other expenses associated with having a home office.

Tax Forms

If you’re still wondering how to file taxes as a real estate agent, let’s take a look at the tax forms you need to complete your tax filing. Below is a list of standard forms applicable to real estate agent taxes.


On this form, you're denoting a record of miscellaneous income you've paid out in the last year. Only use this form if you've made more than $10 in broker payments or more than $600 in other forms of payment. For more details, please review this IRS webpage.


The standard 1040 reports your standard real estate agent income. It comes in three Schedules: Schedule 1 for additional income, Schedule 2 if you owe other types of tax (like self-employment tax), and Schedule 3 for claiming additional tax credits.


Through the 1040-ES form, you’ll report your estimated tax, which is important for self-employed agents. This form covers any taxes that are not automatically withheld.

The content provided on this website is deemed accurate at the time of creation.

Real Estate Agent Taxes - Tax Tips From The CE Shop (2024)


Will most real estate salesperson pay their income taxes? ›

The self-employed, on the other hand, are completely responsible for paying their own taxes. So unless you are legally considered an employee in your real estate brokerage (which is exceedingly rare), your broker will not withhold money from your commission checks for your taxes.

What is the tax business code for a real estate agent? ›

531210 - Offices of Real Estate Agents and Brokers.

How do you avoid taxes on real estate profits? ›

You can avoid capital gains tax when you sell your primary residence by buying another house and using the 121 home sale exclusion. In addition, the 1031 like-kind exchange allows investors to defer taxes when they reinvest the proceeds from the sale of an investment property into another investment property.

What does the IRS consider a real estate professional? ›

Real Estate Professional Test. To qualify as a real estate professional, a taxpayer must satisfy the following tests: Perform more than 50% of services in real property trades or businesses (“50% test”), and. Perform more than 750 hours of service in real property trades or businesses (“750 hours test”), and.

Can you write off clothes as a real estate agent? ›

Generally, you probably can't deduct your clothing as a business expense as a real estate agent, but there are exceptions. To deduct clothing, it must be required to do your job and not suitable to wear outside your business.

How does a salesperson pay taxes on commissions earned? ›

If an individual is an employee who is getting paid commissions by the employer, the employer withholds the taxes and pays the IRS. If the individual is a self-employed independent contractor, the individual is responsible for remitting the taxes to the tax authorities.

How does the IRS classify real estate agents? ›

Licensed real estate agents are statutory nonemployees and are treated as self-employed for all Federal tax purposes, including income and employment taxes, if: Substantially all payments for their services as real estate agents are directly related to sales or other output, rather than to the number of hours worked.

What is the best business entity for a realtor? ›

Every business structure has advantages and disadvantages; however, for most real estate agents and brokers, using an S corporation or LLC is the best option.

How much is self-employment tax? ›

How much is self-employment tax? The self-employment tax rate is 15.3%, with 12.4% for Social Security and 2.9% for Medicare. However, the Social Security portion may only apply to a part of your business income.

How to pay zero taxes with real estate? ›

The 1031 exchange, named for Section 1031 of the Internal Revenue Code, allows investors to defer taxes by selling one investment property and using the equity to purchase another property or properties of equal or greater value. This exchange must occur within a specified period of time.

What is the 2 out of 5 year rule? ›

When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.

What is the 6 year rule? ›

If you use your former home to produce income (for example, you rent it out or make it available for rent), you can choose to treat it as your main residence for up to 6 years after you stop living in it. This is sometimes called the '6-year rule'. You can choose when to stop the period covered by your choice.

What activities count towards 750 hours as a real estate professional? ›

750 hours of real estate-related activities

Beyond the expected day-to-day rental management activities, tasks included in this hours-based requirement include researching properties, analyzing markets, and attending real estate industry seminars.

Can real estate professionals deduct rental losses? ›

Benefits of real estate professional status

They can use rental losses to offset non-passive income. Another benefit of qualifying for real estate professional status is that any rental activities that aren't subject to PAL rules are also not subject to the 3.8% net investment income tax (NIIT).

What activities count as material participation in real estate? ›

469(c)(7) of the IRS code is the following list: Any of the following activities would qualify as material participation: “real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental operation, management, leasing, or brokerage trade or business.”

Are all real estate sales reported to IRS? ›

Reportable Real Estate

Generally, you are required to report a transaction that consists in whole or in part of the sale or exchange for money, indebtedness, property, or services of any present or future ownership interest in any of the following. 1. Improved or unimproved land, including air space.

How much do you pay the IRS when you sell a house? ›

If you sell a house or property in one year or less after owning it, the short-term capital gains is taxed as ordinary income, which could be as high as 37 percent. Long-term capital gains for properties you owned for over a year are taxed at 0 percent, 15 percent or 20 percent depending on your income tax bracket.

Does selling a house count as income? ›

If you owned and lived in the home for a total of two of the five years before the sale, then up to $250,000 of profit is tax-free (or up to $500,000 if you are married and file a joint return). If your profit exceeds the $250,000 or $500,000 limit, the excess is typically reported as a capital gain on Schedule D.

What state pays the highest real estate taxes? ›

New Jersey had the largest median property tax bill for singe-family homes in 2023. Connecticut, New York, New Hampshire and Massachusetts rounded out the top five states with the most expensive median property tax bill.

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