Ordinary and Necessary Business Expenses
As a real estate agent, you are almost always paid as an independent contractor, so your commission income shows up on a 1099-NEC with no taxes withheld. The upside is that you get to deduct any expense that is ordinary and necessary for running your business before you calculate what you owe. That includes broker splits and desk fees, transaction coordinator fees, E&O insurance, MLS and association dues, lockbox fees, license renewals, and continuing education. It also covers marketing costs: professional photography, staging, signage, postcards, paid social ads, and your website or CRM subscription. Referral fees you pay to other agents on a closed deal are deductible too, even though they come straight out of your commission check.
All of these get reported on Schedule C, which nets against your gross commission income to produce your taxable business profit. That profit is what flows to Schedule SE for self-employment tax and to your personal Form 1040.
Mileage and Vehicle Costs
Driving is usually the single biggest deduction agents miss. Miles driven for showings, listing appointments, open houses, inspections, and closings all count as business mileage. You can deduct actual vehicle expenses (gas, repairs, insurance, depreciation, prorated by business use) or use the IRS standard mileage rate, which changes every year, multiplied by your logged business miles. Either way, the deduction only holds up with a contemporaneous log: date, destination, purpose, and miles. An agent who drives 20,000 miles a year for the job but never logs them cannot substantiate the deduction if the IRS asks, so an app that auto-tracks trips is worth the subscription cost, which is itself deductible.
Home Office and Other Overlooked Costs
If you use part of your home regularly and exclusively for business, whether that is a dedicated office for paperwork, prepping listings, or running your CRM, you can deduct a portion of rent or mortgage interest, utilities, insurance, and depreciation using either the simplified method or actual expense method. Other commonly missed deductions include your cell phone and data plan (business-use percentage), a portion of internet, software and apps for showings or e-signing, client gifts up to the IRS limit, professional headshots, business cards, and bank or card processing fees on client payments.
Reporting and Quarterly Taxes
Since no one withholds taxes from your commission checks, these deductions matter twice: they lower your income tax and they lower the 15.3% self-employment tax base on Schedule SE. Track expenses deal by deal so you know what each closing actually netted after broker splits, marketing spend, and mileage, not just the gross commission on the settlement statement. Most agents also need to pay estimated taxes four times a year using Form 1040-ES, and understating deductions early in the year is one of the fastest ways to overpay and blow up your quarterly cash flow.