Auto Deduction for Real Estate Agents and Other Self Employed Taxpayers

Among the industries and professionals that my Dallas, TX tax firm works with include both Real Estate Investors and Real Estate agents. As independent contractors, real estate professionals often incur substantial out of pocket costs to run their business and those costs include the costs of using their vehicle for business purposes.

 Today, I want to cover deducting the costs of owning and operating an automobile that’s used in business. Since Real Estate agents spend a lot of their time and energy meeting with potential home buyers and visiting homes, they tend to accumulate a lot of miles in their business.

 There are two basic methodologies for deducting auto costs available to self-employed taxpayers on Schedule C of their tax return:

  1. The Standard Mileage Option – The IRS allows self-employed individuals to deduct auto costs using a standard mileage rate. For 2019, that rate is 58 cents per business mile driven. To claim this deduction, the taxpayer would take their business miles driven multiplied by 58 cents per mile. In addition to the mileage rate, you can also deduct parking and tolls.
  2. Actual Costs – The actual costs of the vehicle would include allowable depreciation, including any Section 179 deductions or bonus depreciation available, vehicle maintenance, interest, garage rent, insurance, taxes and tags, etc… If the vehicle is not used 100% for business purposes, you will need to calculate and allocate business vs. personal mileage to come up with the allowable deductions.

Some Important Points:

  1. Which option benefits you will be based on your individual circumstances, but typically expensive less economical vehicles will benefit from actual expenses, while those that are economical will benefit from the standard mileage option.
  2. In order to use the standard mileage rate, you must choose the standard mileage method in the first year it is placed in service. In later years, you can choose to use either the standard mileage rate or actual expenses.
  3. The IRS requires tracking your mileage.  This can be done using either a manual method or one of the many apps now available to track mileage.  If you have not done so and are audited, contact a tax professional to assist you in rebuilding your mileage deduction.  

Do you Need Help?

If you would like help from a firm that specializes in working with realtors and real estate investors, as well as helping those who have IRS problems, please give us a call at (972) 821-1991.