Are Real Estate Commissions Tax Deductible?  

It depends on the nature of the property and your intent when selling it. If you’re a business owner or investor selling an investment property, real estate agent commissions are generally tax deductible as part of your selling expenses. These costs reduce your capital gain by lowering the profit from the sale.  

However, if you sell your home (your primary residence), the commissions aren’t directly deductible on your tax return. That said, you can still include them in your cost basis, which effectively reduces the capital gains tax you might owe.  

Think of it like selling a car you’ve upgraded. You hired someone to handle the transaction. Whatever you pay them cuts your profit, and the taxman now sees less tax.  

What Are Real Estate Commissions?  

Real estate commissions refer to the fees paid to real estate agents or brokers for facilitating the sale or purchase of property. These are usually a percentage of the sale price, commonly around 5%–6%, and are typically paid by the seller. The amount is often split between the listing agent and the buyer’s agent.  

For example, if a home is sold for $300,000 with a 6% commission, the seller pays $18,000 in total commissions—$9,000 to each agent.  

How Do Real Estate Commissions Work?  

Say you plan to sell your home or investment property. You sign a listing agreement with a real estate agent that outlines the commission and terms. The agent lists your property, markets it, and handles negotiations. Once a deal is made, the fees paid to both agents are subtracted from the selling price at closing.  

Suppose you’re a small business owner using real estate for business purposes. In that case, these selling expenses may directly reduce your tax liability, especially if you’re working with a tax professional who can identify eligible deductions.  

What’s the Fuss?  

Confusion often arises because people conflate capital improvements (which increase the cost basis) with selling expenses like real estate commissions (which reduce capital gain). Understanding the difference helps clarify what’s deductible and how to calculate gain or loss when filing your tax return.  

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Steps to Deduct Real Estate Commissions  

Here’s how to calculate your deduction and determine your capital gain:  

1. Establish your cost basis – This is usually what you paid for the property.  

2. Adjust your basis – Include improvements like additions or renovations that increase the property’s value.  

3. Determine your sale price – The final price the buyer paid for the property.  

4. Subtract your real estate commissions – Let’s say your sale price is $250,000, and you paid 6% commission ($15,000).  

5. Deduct other eligible selling expenses – This may include legal fees, advertising costs, or mortgage interest (depending on context).  

6. Calculate the capital gains – This is your sale price minus your adjusted cost basis and selling expenses.  

Quick Example  

You are selling your home for $400,000. Your cost basis (original price + improvements) is $300,000. You paid $24,000 in commissions and $1,000 in legal fees. That means your total selling expenses are $25,000. Subtract this from the sale price; your taxable capital gain is $75,000—not $100,000.  

Need help calculating your numbers? A tax professional can ensure you’re not missing out on deductions.   

For over a decade, we’ve been helping small business owners like you ditch the overwhelmed and take control of their taxes.     

Let’s get your tax system working for you!     

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FAQs  

What is the best tax software for real estate agents?  

The best tax software for real estate agents depends on your business size and needs. Popular options include TurboTax Self-Employed, TaxSlayer, and H&R Block Premium.   

These platforms help you maximize deductions related to real estate agent commissions, mileage deductions, home office use, and other business expenses.   

What is a capital asset for tax purposes?  

A capital asset is generally anything you own and use for personal or investment purposes, such as stocks, vehicles, or real estate—including your primary residence and investment property.   

What is the most overlooked tax break?  

One of the most overlooked tax breaks is adding real estate agent commissions and closing costs to your cost basis when calculating capital gains tax.   

Many taxpayers forget they can include legal fees, advertising costs, and even mortgage interest in certain cases when figuring out their tax liability.  

Always consult a tax professional to ensure you’re not missing any eligible deductions.