Some of the costs associated with pursuing a real estate license as well as maintaining a real estate business may qualify as tax deductions as educational or business expenses. These costs must qualify as deductible expenses under different categories of IRS deductions. Certain educational expenses may reduce your income tax up to a certain amount under the lifetime learning credit.
You can deduct tuition-related expenses paid while you were completing state-required real estate courses to obtain your real estate agent or broker’s license, if you completed the courses at an eligible educational institution. If you attended a college, university or vocational school that is eligible to participate in federal student aid programs with the U.S. Department of Education, the school is an eligible educational institution under the federal tuition and fees deduction.
If the school does not qualify as an eligible educational institution for federal income tax purposes, you may be able to deduct monies paid in the course of running your business for tuition, fees, real estate books, research costs and real estate supplies. For example, if you are a real estate agent, and you completed real estate broker’s courses, these fees may be deductible as work-related expenses. You will not be able to deduct these costs if you incurred them prior to entering the real estate profession. For instance, if you completed courses and paid a fee for the real estate agent license exam prior to becoming a real estate agent, these expenses are not deductible as a work-related expense.
If you work out of your home to operate your business, the costs associated with maintaining a home office are deductible. You can deduct utilities used to operate your business. You can also deduct office supplies, computers, computer software, internet and phone service. Report your home office expenses only for the areas in your home that you use for business purposes. Your home office should be your principal place of business, even if you work outside of the home. Some real estate agents work primarily in their home offices and meet clients outside of the home.
If you currently work as a licensed real estate professional, you can deduct the renewal costs for your state licenses as miscellaneous expenses under license and regulatory fees. You can also deduct expenses for attending real estate trade association meetings as business expenses.
The lifetime learning credit reduces a taxpayer’s income tax amount, whereas a deduction reduces a taxpayer’s income that is subject to tax. Eligible students can claim up to $2000 for the lifetime learning credit. You can claim this credit if no other person claims you on his or her tax returns. You can claim the costs of books, supplies and equipment related to the real estate courses. You are also not required to pursue a college degree to become eligible for the lifetime learning credit. However, your income may limit the amount you are able to claim.
- Internal Revenue Service: Miscellaneous Deductions
- Internal Revenue Service: Tuition and Fees Deduction
- Internal Revenue Service: Educational Expenses
- Internal Revenue Service: Other Expenses
- Internal Revenue Service: Home Office Deduction
- Internal Revenue Service: Two Education Credits Help Pay Higher Education Costs
- Commercial Real Estate Global Standard for Professional Achievement; Hanon W. Russell, CCIM, J.D.
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