Taxes for real estate agents

Why are agents self-employed?

Federal tax law treats licensed real estate agents as non-employees if substantially all their pay is commission based on sales, not hours, and a written contract states they will not be treated as employees for tax. Their broker issues Form 1099-NEC rather than a W-2. See Form 1099-NEC.

Some agents work as salaried employees of a brokerage instead, for example as assistants or in-house sales staff. They receive a W-2, have tax withheld, and cannot deduct their own job expenses.

What can agents deduct?

See deductible business expenses and meals and travel.

How should agents manage their taxes?

1. Separate business money

   A business account for commissions and expenses.

2. Set aside part of each commission

   Because closings are irregular. See how much to set aside.

3. Pay quarterly estimates

   Using the prior-year safe harbor when income is uneven. See the underpayment penalty and safe harbors.

4. Keep a mileage log

   Showings add up to thousands of miles.

Consider a separate savings account for tax money, so a large closing does not get spent before the next quarterly payment is due.

When are commissions taxed?

Most agents use the cash method, so a commission is income in the year you receive it, not the year the deal closed. A closing on December 30 paid on January 5 is income in the new year. Expenses are deducted when paid, so year-end purchases can be timed with this in mind. See cash vs accrual accounting.

How are referral fees and client rebates treated?

Referral fees paid to other licensed agents are deductible business expenses, and the agent receiving them reports them as income. Rebates or credits given to buyers out of your commission, where allowed by state law, generally reduce your commission income. Keep the closing statement showing each amount.

Gifts to clients at closing are limited to $25 per person per year.

Should an agent form an S corporation?

Often worth considering once net profit is steady and high, because a reasonable salary plus distributions can reduce self-employment tax. Check your brokerage and state allow commissions to be paid to your company. See when an S corp election saves tax.

What does an example look like?

An agent receives $120,000 of commissions in 2026 after the brokerage split, and spends $28,000 on dues, marketing, E&O insurance, phone and 14,000 business miles. Her net profit is about $92,000. Self-employment tax applies to 92.35% of that, and she can also deduct half of it, her health insurance premiums and her retirement contributions, which together reduce her income tax noticeably. Without quarterly estimates, she would face a large bill and an underpayment penalty in April.

Which personal deductions matter most for agents?

Agents usually buy their own health insurance and save for retirement on their own. Premiums can be deducted through the self-employed health insurance deduction, and a Solo 401(k) or SEP IRA can shelter a large share of a strong year's commissions. See SEP IRA vs Solo 401(k).

What if you also own rental property?

Agents who spend more than 750 hours a year in real property businesses, and more than half their working time, may qualify as real estate professionals, allowing rental losses to offset other income if they materially participate in the rentals. Keep detailed time records. See deducting business losses.

This guide is general information. It is not tax or legal advice for your situation.