Many real estate agents are self-employed and that means, as an agent, you have a lot of business-related tax deductions you can take advantage of come tax time. For higher performing agents especially, mileage is one of the largest deductions you can claim.
Consider how many house hunting trips you make with a buyer before they finally close on a purchase. Or maybe you are a listing agent who makes repeated trips to a seller’s home to stage, refill flyers or conduct open houses. All that travel in your car adds up. Maximizing this large deduction opportunity means making sure you are doing it right, thoroughly and keeping compliant.
What Should Agents Be Tracking?
Real estate agents should be tracking everything for deductions. Read here about deductions beyond vehicle and mileage expenses.
In terms of mileage and vehicle deductions, there are two ways to calculate — standard and actual.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The 2016 standard mileage deduction is 54 cents per mile for business miles driven. The IRS changes the standard rate every year so be sure to check the current IRS table for rates.
The actual expense deduction is just how it sounds – you can deduct the actual costs of operating your car inclusive of maintenance, gas, insurance and repairs.
What Else Should Agents Consider?
Besides mileage, there are other costs you should track, even if you are using the standard rate. These costs include parking and tolls. Generally, you want to keep a receipt for these expenses, whether a paper copy or one you scan into an app.
Certain expenses are not deductible. Generally you can’t deduct interest paid on a car loan unless that car was purchased using a home equity loan. However, you can deduct any personal property taxes paid on a vehicle regardless of which method of deduction your choose.
What Trips Can Agents Deduct?
If you maintain a home office that is your main place of business, any business trip that departs from your office is deductible. These include:
- Open houses
- Taking clients to show listings
- Conferences, trainings and meetings, and going between meetings
- Work-related errands like Staples for office supplies, the post office for stamps or the grocery store to grab cookies for an open house
- Trips to put up and remove signs, flyers and sign posts
How Should Agents Keep Track?
An IRS-complaint mileage log includes the following information:
- Destination (client name/address or a business address)
- Odometer start and stop
- Total miles
- Any relevant expenses such as parking or tolls
You can keep a manual mileage log in handwritten form or on a spreadsheet. Check out our template here.
Or use a mileage tracking app. There are many competitive mileage tracking apps on the market such as MileIQ and TripLog, but the mileage tracking feature within QuickBooks Self-Employed (available for iPhone and Android) is unique because it automatically tracks mileage and integrates it with your other deduction tracking in QBSE. It allows easy categorization based on business or personal trips, and it won’t drain your phone battery.
The integration of all your business deductions in one place is ideal whether you do your own taxes or have an accountant complete them.
Tracking expenses in a systematic way means you won’t leave possible deductions on the table and you’ll be able to defend your deductions in the case of an audit. Finding a method that ensures you are quickly and easily capturing all your deductions will allow you to spend more time doing what you do best — selling houses and making your clients dreams come true.