End of Year Tax Tips for Real Estate Agents and Brokers

The end of the year is fast approaching, which means it's time for real estate agents and brokers to get their finances in order and make sure they are optimizing their taxes. As self-employed professionals, real estate agents have more complex tax situations than W-2 employees, with many more deductions available to them. Taking full advantage of these deductions can result in major tax savings.

Here are some key end-of-year tax tips for real estate agents and brokers:

Review Your Business Expenses

As a real estate agent, many of your day-to-day expenses can be written off as business deductions. Be sure to thoroughly track and record any expenses related to your real estate work, including:

1. Miles driven for showings, open houses, meetings, etc. The current IRS mileage rate is 62.5 cents per mile

2. Real estate licenses and fees

3. Memberships in realtor associations

4. Advertising and marketing costs

5. Phone, internet, and cell phone bills (calculate the percentage used for business)

6. Business insurance policies

7. Office supplies and equipment

8. Continuing education and training costs

9. Travel and meals for business conferences or meetings

10. Portions of vehicle expenses and real estate fees

11. Tax preparation fees

Reviewing these expenses now can help you maximize write-offs and reduce your taxable income for the year. Maintain accurate records in case of an audit.

Contribute to Retirement Accounts

Contributing to retirement accounts, such as a Solo 401(k) or SEP-IRA, can help real estate agents drastically reduce taxable income while saving for the future. For 2023, the contribution limit for Solo 401(k)s is $22,500 for under age 50 and $30,000 for over 50. Limits for SEP-IRAs are up to 25% of net earnings from self-employment, capped at $66,000.

Defer Taxes with a 1031 Exchange

If you sold an investment property in 2023, you can defer paying taxes on the capital gains by completing a 1031 exchange. This allows you to reinvest in another investment property while deferring capital gains taxes. You have 180 days after the sale of the original property to complete the new purchase. Consult a qualified intermediary to ensure you follow all IRS rules.

Claim Home Office Deduction

If you work out of a home office, calculate the percentage of your home devoted to your real estate work. You can deduct that percentage of expenses like rent/mortgage interest, utilities, insurance, repairs, and maintenance.

Write Off Vehicle Expenses

If you use your personal vehicle for business, track mileage meticulously and claim an IRS standard mileage deduction for the business use percentage. Or, you can deduct actual expenses like gas, maintenance, repairs, insurance, and depreciation. Consistent记录critical to justify the write-off.

Consider the New Pass-Through QBI Deduction

As a real estate agent, you likely file your business taxes using a Schedule C. This qualifies you for the new qualified business income (QBI) deduction passed as part of the Tax Cuts and Jobs Act. For 2023, the QBI deduction is up to 20% of qualified business income. There are limitations based on taxable income, but this presents another way for real estate agents to reduce tax liability. Consult a tax professional to calculate your specific deduction.

Stay Organized and Seek Professional Help

Staying organized with your receipts, mileage logs, business expenses, and other documentation will optimize your deductions. Consult a qualified tax professional who understands the complexities of real estate agent taxes. An expert can help uncover deductions you may be missing and ensure your taxes are done thoroughly and accurately.

The end of the year is a perfect time for real estate agents to look closely at their finances, taxes, and seek savings. Taking full advantage of available business deductions provides major tax reductions. Following these end-of-year tax tips will allow real estate professionals to maximize write-offs and start 2024 in a better financial position.

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