Top 5 Tax Mistakes Real Estate Agents Make

The single biggest mileage mistake real estate agents make is deducting the drive from their home to their brokerage office. That drive is commuting, and under IRS Revenue Ruling 99-7 it is never deductible — regardless of how far away the office is or whether you make business calls during the drive.

The IRS rule is straightforward: travel between your home and your regular place of business is a personal commuting expense. For most agents, the brokerage office is that regular place of business. Claiming those miles is an audit red flag, and the IRS specifically trains examiners to look for it.

Temporary Work Location Rule

Even without a home office, the IRS allows you to deduct drives from home to a temporary work location. A temporary location is generally one where you work for less than one year. For real estate agents, this means that driving from home to a single listing appointment or a one-time client meeting at a coffee shop qualifies as deductible — but the drive from home to your brokerage, where you report regularly, does not.

The First Stop / Last Stop Rule

If you leave home and drive directly to the brokerage (your regular office), that first leg is commuting and is not deductible. However, once you leave the brokerage to drive to a showing, and then to another showing, and then to a closing — every mile between those business stops is deductible. If you then drive home from the closing, that last leg is also commuting and is not deductible.

The math changes dramatically if you have a home office. With a qualified home office, the first drive of the day (home to showing) is deductible, and the last drive of the day (closing to home) is also deductible — because your home office is your principal place of business and those drives are between two business locations.

Using one credit card for both personal groceries and business supplies is one of the most common — and most dangerous — habits among real estate agents. When your business and personal expenses are commingled on the same account, you create a nightmare for yourself in the event of an audit.

The IRS does not have to sort through your mixed statements to find the legitimate business expenses. If your records are commingled and you cannot clearly prove the business purpose of each transaction, the examiner is within their rights to disallow the entire category of expenses. This is not a theoretical risk — it happens in audits every year.

How to Fix It

• Open a separate business checking account. Use it exclusively for business income and expenses. This creates a clean paper trail from day one.
• Get a dedicated business credit card. Even if you are a sole proprietor, you can open a business credit card. Every charge on it is presumed to be business-related, which simplifies record-keeping.
• Scan receipts immediately. The moment you make a business purchase, scan the receipt with an app like tiktraq's receipt scanner. Paper receipts fade within months — thermal paper from gas pumps and retail stores can become completely blank within a year. A digital scan preserves the merchant, date, amount, and business purpose permanently.
• Annotate the business purpose. A receipt alone is not enough. The IRS wants to know why the expense was incurred. Write "Open house supplies for 123 Oak St listing" on the receipt before you scan it, or add a note in your tracking app.

Most agents remember to track the big drives — the 45-minute trip to a listing presentation or the 30-mile drive to a closing. But they completely forget about the short trips that happen between those headline events.

Every one of these drives is deductible if it has a business purpose:

• Driving to the bank to deposit a commission check
• Running to the office supply store for printer ink and folders
• Picking up signs from the sign shop
• Dropping off lockboxes at a new listing
• Driving to meet a client for lunch to discuss a listing strategy
• Stopping at the post office to mail a contract
• Visiting a property to take photos or check on a renovation

Individually, these trips might be 3 to 8 miles each. But they happen several times a week, and over the course of a year they add up to thousands of miles. The average real estate agent drives between 12,000 and 15,000 business miles per year when all qualifying trips are counted.

The only reliable way to capture every qualifying trip is to use an automatic mileage tracker that detects drives as they happen. Manual logging fails for these small trips because they feel too insignificant to write down in the moment — but they are not insignificant at tax time. Learn more about what an IRS-proof mileage log requires.

Giving closing gifts is a cherished tradition in real estate. A nice bottle of wine, a custom cutting board, a gift card to a local restaurant — agents routinely spend $50 to $200 per client as a thank-you gesture. The problem arises when they deduct the full amount.

Under IRC §274(b), the IRS limits the deduction for business gifts to $25 per person per year. This limit has not changed in decades, and it applies regardless of how much you actually spend. If you give a client a $150 gift basket at closing, you can only deduct $25 of it.

What Counts as a "Gift"?

The IRS defines a business gift broadly: anything you give to a person in connection with your business where you expect nothing specific in return. Closing gifts, holiday gifts, housewarming presents, and birthday gifts to clients all fall under this definition and are all subject to the $25 cap.

Exceptions to Know About

• Branded promotional items costing $4 or less. Items like pens, keychains, or notepads with your name and logo printed on them are not considered "gifts" under the tax code. They are advertising expenses and are fully deductible with no $25 cap. The item must cost $4 or less and must be clearly branded.
• Signs, displays, and promotional materials. Marketing materials you give to clients — like a branded welcome mat or a "Just Sold" sign photo frame — may be classified as advertising rather than gifts, depending on the circumstances.
• Entertainment is a separate category. Taking a client to dinner is not a "gift" — it falls under the entertainment and meals rules (which have their own limits, typically 50% deductibility for meals with a clear business discussion). Do not conflate the two.

It is April. You are sitting at your kitchen table with your calendar open, trying to reconstruct a mileage log for the entire prior year. You look at an appointment on March 12 — "Showing at 456 Elm St" — and estimate the round trip was about 30 miles. You do this for hundreds of appointments, entering them into a spreadsheet.

This approach fails audits. Here is why.

The Contemporaneous Record Requirement

IRC §274(d) and IRS Publication 463 require that records of business use be made "at or near the time" the expense is incurred. The IRS interprets this to mean within a few days. A log created months after the fact is, by definition, not contemporaneous. IRS examiners are specifically trained to identify retroactively created records, and they have several techniques for doing so.

How IRS Agents Detect Fabricated Logs

• File metadata. Every digital file — spreadsheets, Word documents, PDFs — contains metadata that records the date and time the file was created and last modified. If your "2025 mileage log" file was created on April 10, 2026, the auditor knows it was not contemporaneous.
• Suspiciously round numbers. Real trips produce distances like 23.4 miles or 17.8 miles. If every entry in your log is a round number (20 miles, 30 miles, 50 miles), it suggests estimation rather than actual measurement.
• Identical distances for repeat trips. Even the same route varies slightly due to traffic, construction detours, and choosing different lanes. If your log shows exactly 14.0 miles for every trip to the same property, it looks copied rather than recorded.
• No gaps. A legitimate log has natural gaps — weekends off, vacations, sick days, and bad weather days. A log that shows business driving 365 days a year lacks credibility.
• Cross-referencing with third-party data. Auditors can compare your log against your brokerage records, MLS showing history, client communications, and even cell phone location data obtained through subpoena. If your log claims a 50-mile trip on a day when your MLS account shows no activity, you have a problem.

Every state requires real estate agents to complete continuing education (CE) to maintain their license. Many agents pay for these courses and then forget to deduct them. Others assume that because the education is "required," it somehow does not count.

It absolutely counts. Continuing education that maintains or improves skills required in your current profession is deductible as a business expense on Schedule C. This includes:

• State-mandated CE course fees
• Designation courses (CRS, ABR, GRI, SRES, and others)
• Real estate conferences and seminars (registration fees and travel)
• Coaching and mentorship program fees
• Books, study materials, and online subscriptions related to real estate
• License renewal fees
• NAR, state association, and local board dues

The only limitation is that education expenses that qualify you for a new trade or profession are not deductible. For example, if you are getting your real estate license for the first time, those pre-licensing courses are not deductible as business expenses. But once you are licensed and practicing, all ongoing education to maintain and improve your skills qualifies.

Do not forget to track the mileage to and from CE classes, conferences, and industry events as well. Those drives are business miles.

Marketing is one of the largest expense categories for real estate agents, yet many agents fail to track and deduct all of their marketing costs. This often happens because marketing expenses are spread across many vendors, platforms, and payment methods, making them easy to overlook.

Common marketing expenses that are fully deductible:

• MLS dues and access fees — the monthly or annual fees you pay to access the Multiple Listing Service
• Zillow Premier Agent, Realtor.com, and portal advertising — monthly subscription and pay-per-lead fees
• Social media advertising — Facebook, Instagram, and Google Ads campaigns
• Website hosting, domain registration, and IDX fees
• Professional photography and videography — for listings, headshots, and drone footage
• Printed materials — business cards, flyers, door hangers, postcards, and mailers
• Yard signs, riders, and sign installation fees
• Staging costs — furniture rental and staging company fees for listings
• CRM software — client relationship management tools
• Email marketing platforms — Mailchimp, Constant Contact, etc.

Many agents spend $500 to $2,000+ per month on marketing. If even a fraction of those expenses goes untracked, you are leaving significant deductions on the table. The key is to route all marketing purchases through your dedicated business account and scan every receipt the moment you receive it.

Many agents ask whether they should do their own taxes or hire a professional. The answer depends on the complexity of your situation.

You Can Probably DIY If...

• You have a single source of 1099 income from one brokerage
• Your expenses are straightforward (mileage, phone, MLS fees, marketing)
• You do not own rental properties or have other complex investments
• You are comfortable with tax software like TurboTax Self-Employed or TaxAct
• You use an automated tracking system that generates IRS-ready reports

Hire a CPA If...

• You earn over $100,000 in gross commissions and have significant deductions to optimize
• You are considering forming an S-Corp or LLC for tax savings
• You own rental or investment properties in addition to your agent income
• You have received an IRS notice or are being audited
• You have a team with 1099 subcontractors or W-2 employees
• You want to implement quarterly estimated tax payments correctly to avoid penalties
• Your tax situation involves multiple states (common for agents near state borders)

A good real estate CPA typically charges $300 to $800 for Schedule C preparation, but they often save clients several times that amount by identifying deductions the agent missed and ensuring compliance with complex rules like the home office deduction, vehicle depreciation, and self-employment tax strategies.