If you are a real estate agent, it is important to understand all the tax deductions you can claim for work-related expenses. Common tax-deductible real estate agent expenses include:
- car expenses
- travel expenses
- clothing expenses
- home office expenses
- other general expenses.
We will now look at each of these expenses in more detail.
You can claim for the cost of travelling between different work sites on the same day (e.g. between residential open homes. It is important to understand that you generally can’t claim the cost of travelling from your home to work as a car expense. In addition, if you receive a car allowance from your employer, this must be shown as income on your tax return.
You can use one of two methods to calculate your tax-deductible expense:
Under the logbook method, you work out your percentage of work-related use based on your odometer readings and then claim the relevant portion of your vehicle running costs and depreciation. You must keep a logbook for a minimum continuous period of 12 weeks.
Cents per kilometre method
The tax-deductible rate for the cents per kilometre method has been increased from 68 cents per kilometre for the 2019/20 financial year to 72 cents per kilometre for the 2020/2021 financial year. A maximum of 5,000 kilometres per year can be claimed.
You can claim travel expenses if you need to stay overnight to inspect a property in a remote area. Those travel expenses can include any of the following:
- parking fees.
If you have a uniform that is distinct to your employer (e.g. one with a logo), you can claim any costs to buy, hire, mend or clean it.
It’s important to understand that you cannot claim for the cost of non-distinctive clothing (e.g. a suit), even if your employer tells you to wear one. Unfortunately, you also can’t claim any personal grooming costs, even if your employer requires you to be well groomed.
Home office expenses
If you have to work from home, you can claim home office expenses including a portion of your internet, electricity, gas and phone costs. You can also claim depreciation on any home office equipment you have that is valued over $300 (e.g. a desk or computer). If you buy home office equipment costing less than $300, you can deduct the full expense in the financial year of purchase.
It is important to understand that you cannot claim other home costs such as rates, rent, home loan interest or home and contents insurance.
There are three methods you can use to deduct home office expenses:
1) the shortcut method
2) the fixed rate method
3) the actual cost method.
You can choose whichever method provides you with the highest tax deduction.
The shortcut method is a temporary COVID-19 initiative that allows you to claim 80 cents an hour for each hour you work from home between 1 March and 30 September 2020. You must keep a record of the number of hours you’re claiming (e.g. a diary). You do not need to have a dedicated work area at home to use the shortcut method.
Fixed rate method
The fixed rate method allows you to claim 52 cents an hour for each hour you work from home. You must keep records of the number of hours work at home over the financial year, or alternatively, you can keep a four-week diary to show your usual working from home hours.
You need to have a dedicated work area at home to claim home office expenses using the fixed rate method.
Actual cost method
As the name suggests, the actual cost method requires you to keep track of the specific additional costs you incur as a result of working from home. You must keep records to substantiate your claim.
If you buy gifts for your real estate clients (like flowers, pot plants, hampers, chocolates or bottles of champagne), they are tax-deductible provided that part or all of of your income is commission-based. You cannot claim gifts as tax-deductible expenses if you’re on a fixed income.
You also cannot claim entertainment-related gifts to clients (e.g. tickets to a live sporting event or holiday vouchers).
Other general expenses
There are a variety of other common out-of-pocket real estate agent expenses that you can claim as tax deductions, including:
- mobile phone expenses
- advertising and marketing costs (including business cards, flyers, signage and social media videos)
- marketing equipment (e.g. cameras, drones or virtual reality goggles costing less than $300. Items costing more than this amount can be depreciated.)
- the cost of decorating properties for open homes
- fees for obtaining and renewing your real estate agent licence
- professional association fees (e.g. membership of the Real Estate Institute of Victoria)
- fees and subscriptions for technical or professional publications
- tax agent fees for preparing your tax return
- handbags, satchels or briefcases that you use to carry work-related items
- self-education expenses related to your real estate work (e.g. the cost of a real estate sales skills course)
Criteria for claiming tax-deductible work-related expenses
A tax-deductible work-related expense must meet three criteria:
1) you must have paid for it yourself and not been reimbursed by your employer.
2) it must be directly related to you earning your income (not a personal expense).
3) you must have a record to prove it (e.g. a receipt or a log book for a car expense).
How we can help
Our experienced team of real estate accountants at Wilson Pateras in Richmond can help you to maximise all of your eligible deductions so you can legally minimise your tax. It is important to understand that tax minimisation is legal and a sensible financial strategy. Tax avoidance on the other hand is not and can result in heavy penalties.
Contact us today for a complimentary, obligation-free consultation to find out how we can help you!