As a realtor, you likely spend a lot of time driving around town to show properties, meet with clients, and attend industry events. All of this driving can add up, and it can be costly, both in terms of fuel expenses and wear and tear on your vehicle. However, there is some good news – you may be able to deduct some of these costs on your taxes using the mileage deduction.
The mileage deduction is a tax deduction that allows you to deduct the cost of using your personal vehicle for business purposes. For realtors, this can be a significant tax benefit, as it can help to offset some of the costs associated with their job.
In this blog post, we’ll discuss how to claim the mileage deduction as a realtor, including what qualifies as business-related driving, how to track your mileage, and how to calculate the deduction.
What Qualifies as Business-Related Driving?
Before you can claim the mileage deduction, you need to understand what types of driving qualify as business-related. According to the IRS, business-related driving includes any travel that is done for the purpose of your trade or business. This can include:
It’s important to note that commuting to and from work does not qualify as business-related driving. This means that if you drive to and from your brokerage office every day, you cannot deduct those miles on your taxes. However, if you drive to meet a client after you have arrived at the office, or if you drive from the office to a property showing, those miles would be deductible.
It’s also worth noting that you cannot deduct miles that are driven for personal reasons. For example, if you drive to the grocery store after a client meeting, you cannot deduct those miles. However, if you drive directly from the client meeting to the property showing without making any personal stops in between, those miles would be deductible. It is important to track both personal and business mileage to the IRS.
How to Track Your Mileage
To claim the mileage deduction, you need to keep track of your business-related driving. The easiest way to do this is to use a mileage tracking app or software. There are many options available, both free and paid, that can help you track your miles automatically using GPS technology.
Some popular mileage tracking apps include(Listed in order of recommendation):
With these apps, you simply need to download the software onto your smartphone and allow it to track your location. The app will then automatically log your business-related miles, and you can categorize each trip as either personal or business. At the end of the year, you can export your mileage log to use on your tax return.
If you prefer not to use an app, you can also track your mileage manually. Simply keep a notebook or spreadsheet in your car, and log each trip that you take for business purposes. You must include the date of the trip, the starting and ending odometer readings, the purpose of the trip, and the total number of miles driven.
It’s important to be as accurate as possible when tracking your mileage, as any errors or omissions could result in a penalty from the IRS. Additionally, you should keep any receipts or other documentation related to your vehicle expenses, such as gas receipts or repair bills, in case you are ever audited.
How to Calculate the Deduction
Once you have tracked your business-related driving, you can calculate your total mileage deduction.
Using the standard mileage rate method for the deduction and is often more beneficial to the owner, not just in amount, but also for long term tax consequences. When using real expenses, depreciation and calculating the allowable percentage of expenses can become complicated and also requires additional information.
The following list details the standard business mileage rate allowed by the IRS to be deducted for each year.
The above is not intended to be read as tax advice and the herein is based on the facts provided to us through the IRS and their publications at the time of writing without the intention to include every individual situation. Tax law is subject to continual change, at times on a retroactive basis and may result in incremental taxes, interest or penalties. Should the facts provided to us be incorrect or incomplete or should the law or its interpretation change, our advice may be inappropriate. We are not responsible for updating our advice for changes in law or interpretation after the date hereof. We advise every individual reading this advice to directly contact a professional with expertise in taxation or the area of importance that they intend to use the information for.
