Deduct the Chariot: Automobile Tax Deductions for Real Estate Agents
- January 21st, 2015
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When it comes to real estate agents, many will agree that the only ones in the car more than them are NASCAR drivers and truck drivers. Hopping house to house, office to property, the amount of driving for work that real estate agents do is incredible, that’s why automobile 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 automobile tax deduction for real estate agents is the big one – but don’t think that it’s just for gas mileage. Because of the expected business use, automobile 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 automobile tax deductions for real estate agents.
Calculating automobile 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:
1) 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 40,000 miles, and 20,000 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 automobile expenses for the year were $14,000, then $7,000 of that would be tax-deductible.
2) 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.
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 automobile 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 JRH & Associates we specialize in all aspects of tax returns on Long Island. If you need help with your tax return, or automobile tax deductions for real estate agents, call the tax professionals at JRH & Associates at (516) 794-5752! Stay tuned for our next blog about home office tax deductions and deductions for hiring the family.