Real estate professionals often enjoy few tax breaks, so tracking your mileage is of paramount importance. More than likely, you're essentially working out of your car as you drive between showings and closings on a daily basis. Tracking your mileage gives you a rare opportunity to let your car work for you.
To give you some idea of how lucrative these write-offs are, real estate agents in 2018 earned upwards of 54½¢ for every mile they drove at work.
Adding up the Miles at Work
Assume that a real estate agent drives around 50 miles each day at work. They might drive five days a week, if they're lucky enough to get weekends off regularly. Even if our hypothetical agent took two weeks off for vacation time, that's still a great deal of miles they're driving. They could write around $9,500 off of their taxable income. Mileage deductions are in addition to countless other legitimate business expenses that they can claim.
The problem is that the IRS requires you to prove your mileage. You can't simply guess, since the IRS will understandably disallow outlandish figures. If they can't trust your numbers, then you weren't earn a deduction. Fortunately, there are some tech-based solutions that can help. Consider installing a GPSWox car tracking or a device that uses cellular frequencies to monitor the amount of miles you put on your car in a day. IRS agents are more likely to accept data collected by a computer, since it's much harder for a machine to show bias.
To draw up a compliant mileage log, you'll need to capture all of the following data:
- How much you drive each trip
- The date of every trip and where you're going
- How these trips benefit your business
Obviously, you can't write off trips to the grocery store or anywhere else as a business expense unless you have a particularly good reason.
What Kind of Driving can be Claimed on Taxes?
The good news is that the IRS is pretty lenient when it comes to what they consider business trips. You're always able to write off trips to new properties and whenever you drive somewhere to meet a client. Considering that prospective clients who don't work out are still clients, you'll be able to claim even failed business trips on your taxes.
A trip to the bank could be deductible if you're depositing money you earned as part of a deal. Traveling between offices is fine as well.
Strangely, you can't actually deduct your regular commute. Driving from your home to the office doesn't count. If you have a qualifying home office, then you can deduct all trips home because you're technically heading to work. The IRS is pretty strict on what counts as a home office, but the good news is you'll also be able to deduct other expenses if they consider your house to be one.
Filing the Right Forms
Motorists will need to acquire the proper forms if they want to be able to claim these deductions. The IRS wants you to input your mileage on your Schedule C form. Real estate agents who don't currently file one will want to start.
Unfortunately, if you're used to filling out one of the short so-called easy forms you may have to give that up. A little extra work at tax time, however, is more than worth it considering how much you could end up writing off in the process. Best of all, you might find some other deductions that you didn't know you had.
Assuming that you're using a digital solution to track your mileage, you should be able to export your information to a spreadsheet or other type of computer file. Don't forget to take photographs of your odometer too for a little extra proof.
Making the Most of Your Mileage
Unless you live in a state that doesn't have income taxes, you won't want to forget about those deductions either. Keep abreast of both state and federal laws at all times. While it might seem like a lot of work, you could end up saving more money in the process than you had ever thought possible.