It’s not uncommon for some full-time agents to drive upwards of 33,000 miles per year for business. That’s a lot of driving! So much driving, in fact, that the average real estate agent drives more business miles in a single year than most of us drive in two years! Hopefully, all this driving is generating a lot of commissions. It also saves many thousands in taxes every year.
The auto deduction is a real estate agent’s largest tax deduction. The federal and state tax savings from properly deducting 30,300 miles is over $6,000 for the average real estate agent! It’s also a deduction that is maximized and simplified by having a qualified home office. Helping real estate agents maximize this important deduction is why we created our course, Auto and Home Office Deduction for Real Estate Agents. In this article, I’ll discuss the relationship between the auto deduction and the qualified home office. Deductible auto use is also the topic of our Two-Minute Tax Take, Real Estate Agent: What Auto Use Can Be Deducted? To learn more about the qualified home office, check out our article, Real Estate Agents - the #1 Key to Maximizing Your Tax Deductions is the Home Office.
Why the Home Office Matters: Every $1,000 in legitimate tax deductions saves the average real estate agent $300 to $400 in taxes. But, the deduction provided by having a qualified home office is usually small compared to the boost it provides another deduction on Schedule C: Line 9 Car and Truck Expenses. Having a qualified home office makes more auto use deductible. It also simplifies the calculation. To illustrate how the home office interacts with the auto deduction, let’s take a quick look at deductible auto use for those who have and those who do not have a qualified home office.
Auto Use without Home Office: For business owners who lack a qualified home office determining deductible business trips can be a challenge. Trips between home and your primary workplace (broker’s office for most real estate agents) are considered commuting. Commuting trips are not deductible. Trips from your primary workplace to a second job, however, are deductible but driving home from your second job is commuting and not deductible. Trips to and from your primary workplace and temporary work locations are deductible as are trips between your home and temporary work locations. Confused? This IRS illustration used in our auto deduction course may help clarify deductible trips for a real estate agent who no qualified home office.
As you can see in the illustration, temporary work locations are very important when it comes to deducting auto use. But what’s a temporary work location? Here’s a brief overview.
Temporary Work Location: The concept of a temporary work location, particularly involving trips from home is complex. As a result, potentially deductible trips are often overlooked by many real estate agents while other real estate agents deduct numerous trips that do not qualify. This complexity makes the auto deduction a common IRS target. The most common reasons auditors deny the deduction is the real estate agent’s failure to prove that destinations qualify as temporary workplaces. The concept is too tangled to unwind in a single article and is why we cover it so extensively in our course, Auto & Home Office Deductions for Real Estate Agents.
Many real estate agents believe the definition of a temporary work location is so encompassing nearly any trip can be transformed into a deduction. Unfortunately, this is belief is based on misinformation and simply not true. A destination must meet several requirements before it qualifies as a temporary work location. Here’s a quick rundown:
No Regular Place of Business: If you do not have a qualifying home office or regular workplace, deductible auto expenses do not start until you arrive at your first temporary work location. After you arrive at your first temporary business location, trips to other temporary work locations are deductible. But, trips from a temporary work location back to your home are considered commuting and are not deductible. There is an exception to this rule when the temporary work location is outside of the general area where you sell properties. Those trips to and from your home are deductible.
Determining what is and is not a temporary work location is a lot more challenging than many Real Estate Agents believe and the reason the deduction is so commonly denied by the IRS. Helping you deduct legitimate business trips and audit-proof your deduction with appropriate records is the purpose of Auto & Home Office Deductions for Real Estate Agents.
Auto Use with Qualified Home Office: Having a qualified home office simplifies the determination of deductible auto use. Your primary work location is your home. All business-related travel to and from primary work location is a deductible. As long as the primary purpose of a trip is business-related, it’s deductible!
The image below shows what auto use is deductible if you have a home office.
Other Auto Issues: Knowing which trips are deductible is just start of deducting auto use on your tax return. If you have a qualifying home office, you must make sure it stands up to IRS scrutiny. You must also determine the method you will use to claim your auto deduction, the Standard Mileage Rate or the Actual Cost Method. Finally, you must retain records that will substantiate your home office and auto deduction to the IRS.
Keep Learning: We hope this article has helped you better understand the relationship between the qualified home office and deductible auto use. If you’re interested in maximizing and audit-proofing your home office and auto deduction, we invite you to take our course, Auto & Home Office Deductions for Real Estate Agents. If you really want to minimize the tax you pay, our Comprehensive Tax Cuts for Real Estate Agents Library is for you. This searchable video library is the preeminent authority for real estate agents who are serious about cutting their tax due. It covers everything a real estate agent needs to know to maximize and substantiate every possible deduction real estate agents can take on their business tax return.
All courses and articles are for informational purposes only and do not constitute tax advice. Taxes are complicated - do not act on course information without consulting a professional. Always refer to treasury regulation before making any tax decision. Read the full disclaimer.
I just completed the 1099-NEC/MISC course - this was very helpful to me. It is greatly appreciated.- Tammy L, Anchorage, AK, 1099-NEC & 1099-MISC Training Course Course
This course package is thorough and will give you a solid handle on how to optimize your business expenses to minimize your taxes and keep appropriate records to handle any IRS challenges. Only want to dive into a particular topic? Jump to that video and scan forward to where your issue is addressed. Or watch the whole series to learn it all!- Josh, Charles Town, WV, Real Estate Agent Tax-Cut Library, Agent Edition Course
I took the course last weekend and it was excellent. I’ve also had a couple of e-mail exchanges with Brett to clarify a few things, which I really appreciated. I found the class to be very easy to understand. I do have a finance background, but I think it would be comprehensible to people who don’t. I will recommend that the next Treasurer of our HOA take the course when he/she takes over.- Nancy S, Glenview, IL, 1120-H Basics Course
I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics (Training Edition) Course
I haven’t practiced in the accounting field in quite some time and wanted a refresher. The Overnight Account course 1099-Misc Basics was very helpful! It was simple to follow along and understand each section. I would highly recommend this course! Staff were quick to answer my question as well. I love that I can review the modules again, if needed, at any time. I will definitely be using them again for more classes.- Tammy, Anchorage, AK, 1099-MISC Basics Course