This question worries new broker owners because the dollars are so large. A brokerage can run millions of gross commission through its account while keeping only a fraction. The tax system handles this cleanly: you report the gross, you deduct the splits, and you are taxed on the difference.
Agent splits are a 100% deductible business expense
Payments to agents are compensation for services that directly produce your revenue, which makes them ordinary and necessary business expenses under IRC Section 162, deductible at 100%. On Schedule C they belong on the commissions and fees line; on a partnership or S corp return they appear as commission expense. There is no cap, no phase-out, and no partial limitation the way there is for meals. A 90/10 split on a mega producer is just as deductible as a 50/50 split on a rookie.
The same logic covers referral fees paid to cooperating brokerages, payments to a licensed transaction coordinator, and bonuses paid to agents under your ICA. If the payment is what it cost you to earn the commission, it comes off the top.
Gross commission versus company dollar on your return
The mechanical point that trips people up: do not net the split before reporting. If a $30,000 commission closes and the agent's share is $24,000, the brokerage reports $30,000 of gross receipts and a $24,000 deduction, not $6,000 of income. The bottom line tax is identical, but the IRS matches the 1099s and closing statements issued to your brokerage against your reported gross. Reporting only company dollar creates a mismatch that looks like underreported income and invites letters you do not want.
This also means your books should track both numbers all year: gross commission income by deal, and splits paid by agent. That is what makes the return, and any audit response, a printout instead of a project.
Documentation the IRS expects for split payouts
The deduction is only as strong as the paper behind it. Keep the independent contractor agreement showing each agent's split schedule, the closing statement for each transaction, and the disbursement record showing the payout. Then close the loop with information returns: agents paid $600 or more in a year get a Form 1099-NEC from the brokerage by January 31. A split you deducted but never reported on a 1099-NEC is the single easiest flag for an examiner to pull.
One caution: payments to unlicensed assistants for activities requiring a license, or splits routed to an agent's entity without matching paperwork, can create state licensing problems even when the tax deduction itself is fine. Keep the payout trail matching the license trail and both regulators stay quiet.