Real Estate Agent Mileage Deduction Strategy. Mileage Rate For Real Estate Agents

How to maximize Mileage Rate Deductions as a Real Estate Agent

Most real-estate agents are self-employed and the mileage deduction is one of the biggest tax deductions you can claim. Thus, you should be keeping detailed records of your mileage to take full advantage of this opportunity.
 
Think of how many trips you make with buyers before you close a sale. Or how many times you drive to properties to refill flyers or to conduct open houses.  All those miles add up, and it’s important to keep track of your mileage for every trip to maximize your deduction.

What Information Should I Include in My Records?

Any IRS-compliant records will include the following information.  If you’re using an automated mileage tracking app, check their format to make sure the information below is provided:
 
  • The date and time stamp of the trip
  • The departure and destination address
  • Claims justification e.g. client’s name and meeting purpose
  • The total miles you took on the trip
  • Any relevant fees (such as parking fees or tolls)
In the unlikely event of an audit, it is important to keep detailed information to justify your expenses.  The IRS will expect at least this level of detail and will not accept non-compliant records, so making sure that your records are adequate is crucial to your deduction. Otherwise your audit is expanded and go back three years!
 
So what trips should you be tracking your mileage for?  The short answer is, you should be tracking everything. You should be tracking trips you make to properties or trips taken to meet with clients.  You can also track trips to properties to conduct open houses, to refill flyers and brochures, to post or remove signs, or to collect documents. You should track trips for conferences, meetings with potential clients.  
 
All these miles can add up to major savings during tax season.  Every mile you drive for work is important to log and, since you’re driving so much for work, automating your mileage tracking can make it less time consuming to log all trips and to categorize any trip as being for business or personal reasons.
 
Automating your mileage tracking makes it much easier to track your mileage — no more losing that note you wrote on the back of a receipt or forgetting to write down your mileage in that paper logbook!  You will find that you log many more shorter trips than before. You’ll be able to categorize each trip as you go, and you can edit your records later if you’re too busy to do it at the moment.
 
Brokers who work at home can deduct the trip from the work office to the first client. Real-Estate agents that enjoy the deduction of the home office, can also increase the number of miles eligible for the deduction of miles.
 
Assuming you keep a proper mileage log, there are two methods to calculate the tax deduction. The Standard method and the Actual Expense method. The starndard method is simpler.
Many brokers use the standard mileage rate for the first year and then the IRS lets you switch from one method to another for later years. If you drive 10,000 miles or more every year for your real estate activity, you will typically get the biggest tax relief by using the standard deduction of mileage.
 
A typical exception would be if you have a new car. The best way to decide it to keep a log of all expenses and calculate your actual expenses. After calculating your actual expenses, you may find that it is more beneficial to deduct based on your actual expenses rather than taking the standard mileage deduction.  This is one of the benefits of keeping detailed expense records and can help you take your deduction.
 
While the standard mileage deduction is good for simplicity, if you have bought a new car for work or have made major repairs to your vehicle in the past year, the actual expense method may save you more money in the long term.
 
So while your mileage is the most important aspect of your expenses to track, you’ll also want to maintain records of money spent on insurance, maintenance and repairs, parking fees, tolls, and other vehicle-related expenses.  
 
That means that if you use your car for work 80% of the time, you can deduct 80% of your total vehicle-related expenses.
 
If you choose to take the actual expenses deduction, you need to make sure you keep a record of all the expenses when they occur.  This will protect you in the event of an audit and will help you justify the amount you deducted. Gas is part of the maintenance of a vehicle for business purposes but is only deductible, when you use actual expense method.  You can also only depreciate your car if you decide not to use the standard mileage.
 
MileCatcher is an application that makes it easier to track mileage. You can find more free tax tips in our free e-books.

Common Mileage Deduction Strategy for Real Estate Agents

Mileage log is the most important aspect of your expenses to track. You’ll also want to maintain records of money spent on insurance, maintenance and repairs, parking fees, tolls, and other vehicle-related expenses.  If you use the Actual Expense method, then you will be able to deduct a portion of these expenses based on what proportion of your total miles you drive for work. That means that if you use your car for work 80% of the time, you can deduct 80% of your total vehicle-related expenses.
 
While the standard mileage deduction is good for simplicity, if you have bought a car for work or have made major repairs to your vehicle in the past year, the actual expense method may save you more money in the long term.

What Other Expenses Can Real Estate Agents Deduct?

If you work from home and have a dedicated home office, you could be taking a deduction based on the square footage of your office.  The home office deduction is based on the size of your space relative to the size of your home, allowing you to deduct a portion of rent, utilities, and other expenses such as renovation or repair costs.
 
There are a number of deductions available to you as a real estate professional, but the most important and most lucrative is the mileage deduction.  It is crucial to track your business mileage and maintain detailed records in order to get the maximum deduction available to you.
Frederick W. Daily, J.D, LL. M (tax)

Frederick W. Daily, J.D, LL. M (tax)

Fred Daily is a tax attorney with over four decades of experience in the tax field. He has given tax programs for CPAs, Enrolled Agents and even the IRS. Fred has been quoted in the New York Times, Wall Street Journal, and has appeared on CBS, NBC, Fox, NPR news features and ABC’s Good Morning America. He is an author of books on taxes and his website, taxattorneydaily.com features a wealth of tax tips for minimizing taxes and dealing with IRS issues.