As a Real Estate Agent, you most likely find yourself sometimes showing a potential buyer tens of homes before they make a decision to purchase a property (or don’t). While that can be frustrating, it’s important to make sure that as a Realtor you get the proper deduction for all of that driving. So, what can you deduct and how can you maximize your Deduction.
As a Self-Employed Taxpayer, the IRS provides two options for deducting automobile expenses, and you are allowed to select the method that is most advantageous to you. The options are:
- Actual Expense Method, or
- Mileage Method
I recommend that you keep track of your actual expenses and business mileage so you can compare the two methods and select the one that will create the largest tax deduction.
Using either method, you are required to track your mileage and the rules say this tracking should be contemporaneous, which means that you should track them as they occur. You can track your mileage using a log book, however, there are a number of apps which make this process simple and painless when it comes to tax time.
If you use the actual method, you will also need to keep records and receipts for all expenses deducted. If audited by the IRS, they may ask to see repair bills and mileage logs. Remember that repair bills include mileage at the time of the service. Is your mileage log reflecting the same mileage on this date? If not, you may have an issue during that audit.
The costs of the actual mileage method include –
- Fuel
- Repairs and Maintenance
- Insurance
- Depreciation
- Registration Fees and Other Direct Costs
The Mileage Rate used for 2020 was 57.5 cents per mile but it has dropped slightly in 2021 to 56 cents per mile.
Parking and Tolls are separate and can be used with either method. One important rule is that if you use the actual expense method in the first year, you must use it for all years. If you use the Mileage Method in the first year, you have some flexibility to switch in future years.
I will cover other topics related around automobile use in the future including whether to Lease or Buy so stay tuned.
If you are a Realtor and need professional help with your taxes, keeping your books properly, or dealing with any IRS issues, give me a call at (972) 821-1991 or send me an email at [email protected] for a FREE consultation. Learn more about us at https://jablonskyandassociates.com/real-estate/.
