For real estate agents, their vehicle is used much more than the office. Many could even stretch that to say, “The only ones in the car more than us are Dale Earnhardt Jr. and truck drivers. Running house to house and office to property, the amount of driving for work that real estate agents do is incredible, that’s why vehicle tax deduction for real estate agents is so important.
Because real estate agents are considered self-employed, independent contractors they are entitled to certain tax deductions and the vehicle tax deduction for real estate agents is the big one. It is important to remember it’s just for gas mileage. Because of the expected business use, vehicle tax deductions for real estate agents also include insurance, parking, repairs, maintenance, license, loan interest and depreciation. To maximize your business profits you need to be aware of the tax breaks and deductions, but first let’s outline available vehicle tax deductions for real estate agents.
Calculating vehicle tax deductions for real estate agents
The IRS allows deductions for tolls, parking, insurance, repairs, maintenance, license, loan interest, depreciation and gasoline. There are two ways to calculate how much you use your car for business, this method is most directly linked with deductions for gas mileage but can also assist in finding the deduction for repairs and depreciation.
There are two (2) methods for calculating your deduction:
- The current Standard Mileage Method was put into place on January 1, 2014 by the IRS for cars and trucks for the 2014 tax year. With this method there is less recording but you could be missing out on a lot of deductions. The standard tax deduction using the standard mileage method is $0.56 for every business mile driven.
- The Actual Cost Method allows you to deduct the actual expenses of operating your car for business. This method involves quite a bit of record keeping and tracking of your miles (however, the IRS only requires a record of three months out of the year). For example, say a real estate agent’s total yearly mileage is 50,000 miles, and 25,000 miles were used to show and preview properties, hold open houses and attend office meetings. That would mean that the yearly percentage of business use for your car would be 50%. If total vehicle expenses for the year were $16,000, then $8,000 of that would be tax-deductible.
Note: It is good practice to get an oil change on the 1st of every year. That way you will have 3rd party documentation showing your mileage at the beginning of the year.
When you are thinking about buying or leasing a new vehicle, talk to your accountant about vehicle tax deductions for real estate agents. They can tell you which option is better based on your use for business and current tax situation. It is important to remember that when leasing there are usually mileage limits for vehicles and going over can hit you with a huge penalty.
At DeFreitas & Minsky we specialize in all aspects of tax returns on Long Island. If you need help with your tax return, or vehicle tax deductions for real estate agents, don’t hesitate to call DeFreitas & Minsky Certified Public Accountants can help sort everything out. Call us at 516.746.6322 for more information.