Real Estate Agent Tax Deduction Tips

Understanding the Value of Tax Deductions

As a real estate agent, the commission that you receive is not on after-tax basis. Rather, it is a business revenue that is used to pay for both your expenses and salary. By maintaining expense records, and hiring an experienced tax accountant who is fully aware of the wide range of allowable deductions you are entitled to, you will be able to enjoy considerable tax savings and retain more after-tax income from your hard-earned commissions

Subject to some key exclusions, there is no limit on the amount of deductions in the real estate sector, as long as the quoted amount is sensible, and you cannot deduct more than the amount you have spent. As a general rule of thumb, a cost is realistic unless there are more inexpensive and practical methods to attain the same result. In a case where the CRA found out about your unreasonably large deductions, they would automatically disallow the deductions or the section that they find unsuitable. Knowing how to save on tax expense will be important to your success as an real estate agent or broker. After you get your real estate license, there will be many ongoing maintenance expenses with association, licensing, and etc. Therefore, every dollar counts. 

Normally, more detailed and complex tax deduction tips and methods will be covered in real estate licensing courses or books. Below are general tax tips that are commonly used.

​General Tax Tips

As a real estate agent in Canada, keeping CRA out of your bank account can be a tedious exercise. Below are a few tips and methods that you can use to ensure that you get the most deductions and receive a bigger pay check.

  • Set up a different bank account that you will use for business transactions only. This account will act as the primary account for both your expenses and commission income. This will help in differentiating between personal and business expenses, but more importantly, it will not open doors for CRA to analyze all your personal activities in case you are selected for an audit.
  • Record the GST/HST that you have collected. This does not belong to you. It is wise to keep aside all of the GST/HST that you collected on each commission cheque, just to ensure that you have adequate funds to forward to the CRA at tax time. In case you owe less GST/HST towards the end of the year, they will see the remaining GST/HST that has not been remitted to the CRA as a bonus.
  • Before you begin your career as a real estate agent, meet with an accounting professional to gain a better understanding on what to expect in terms of tax filing. You can discuss with an expert about issues concerning taxes and receipts and best practices. Most of the issues that you have can typically be addressed in an one-hour session.
  • Bookkeeping is a must. Establish a system where it is a common exercise to divide your expenses into several categories, you can do so by inputting the data into a spreadsheet or maintain them in folders. The more often you do this, the easier it will be for you to track your expenses and use them during tax time. You can also use online gadgets to track your expenses. These online tools include Freshbooks, and Wave Accounting just to mention a few.​

Tax Deductions and Write-Offs

Real estate agents when claiming deductions, often overlook some of the basic expenses which can reap huge benefits for them. We shall look at a few of these expenditures. They include the following:

  1. Transportation - It is true that most real estate dealings are made locally, but when it comes to brokerage training or meetings, you may have to visit other parts of the country or even travel overseas. Most of the expenses which you pay for are tax deductible, for instance, travel arrangements such as car rental, airfare and hotel accommodations.​
  2. Office Supplies/Equipment - As a real estate agent, you are allowed to deduct expenses that are meant for generating future income. This includes the laptop you bought for use on-the-go, the printer, and all stationary such as paper, pencils, and pens. Fortunately, all office-related supply is deductible. These expenses are small but often add up.
  3. Utility - The majority of real estate agents are self-employed and naturally have an office set up in their home. The electricity that you pay every month is tax deductible. Make sure that you track all the utility bills that you have paid in the year so that you can claim it on your tax returns.
  4. Client-Related Expenses - At times, you may have to take the potential buyer out for lunch to develop rapport and convince them to purchase the property. You can claim 50% of these entertainment and dining expenses as a tax deduction.
  5. Commission Rebates - With real estate prices rising in Canada, customers who are either buying or selling regularly ask their agent for a break on their commission so as to aid in closing costs, likely renovations, or to decrease their mortgage balance after closing. These commission rebates are 100% deductible to the agent.

We hope you find this article useful. For more real estate licensing news, study tips, and real estate market analysis, updates, and career advancement guides. Please subscribe to our mailing list below. Thank you!

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