A licensed real estate agent who is paid on commission and works under a written contract is taxed as self-employed. Your commissions go on Schedule C, you pay income tax and self-employment tax on the profit, and you deduct the cost of running the business: brokerage fees, dues, insurance, marketing, a share of your car, and more. This guide covers three questions: which year a closing’s commission lands in, which costs the IRS lets you deduct and which it doesn’t, and how the QBI deduction treats a real estate business.
This guide covers those three, with numbers from our own calculators. It doesn’t cover retirement plans, which have their own page, Solo 401(k) for real estate agents, or the mechanics of estimated payments, which our quarterly payments guide covers. Everything below is federal tax for 2026.
Are you self-employed
The IRS says most real estate professionals operate as a sole proprietorship, meaning they aren’t someone’s employee, haven’t formed a partnership and haven’t incorporated. It adds that licensed real estate agents are statutory nonemployees, treated as self-employed for all federal tax purposes, including income and employment taxes, if two conditions are met:
- Substantially all payments for their services as real estate agents are directly related to sales or other output, rather than to the number of hours worked.
- Their services are performed under a written contract providing that they will not be treated as employees for federal tax purposes.
The IRS says this category includes people doing appraisal work for real estate sales if they earn income based on sales or other output. In practice: read your independent contractor agreement with the brokerage. If you’re paid by the hour or a salary, the conditions aren’t met, and the 1099 vs. W-2 comparison explains how the IRS looks at the difference.
When a commission counts
Many sole proprietors with no inventory use the cash method, per Publication 334. Under it you include in gross income everything you receive during the year, in hand or constructively. Receipt of a valid check by the end of the year counts for that year, even if you can’t deposit it until the next. The IRS’s own example is a check received on December 30 and deposited on January 3, which is income for the year it was received.
For an agent the practical question is the date the money reaches you, not the date the contract is signed or the sale is closed. A commission that is paid to you in January belongs to next year’s return, and one that reaches you before December 31 belongs to this one. If the brokerage has the check ready in December and you pick it up in January, it is still December income. Our timing guide for writers, designers and developers covers the same rule for invoices.
To see what is at stake, we ran a hypothetical agent through the same functions as our Freelance Tax Calculator. The full-year example below has $82,580 of profit. Add one more $18,000 commission to that year and the profit is $100,580, which takes federal tax, income tax plus self-employment tax, from $17,243 to $22,542. That’s $5,299 more for that one commission. If the same payment reaches you on January 5 instead, it lands on the next year’s return, where it will be taxed at that year’s rates. Moving a payment changes the year it’s taxed in. It doesn’t remove the tax.
What an agent deducts
Business expenses have to be ordinary and necessary, which Publication 334 defines as common and accepted in your field, and helpful and appropriate for your business. If an expense is partly personal, the IRS says to separate the personal part from the business part, and the personal part is generally not deductible. The full list by Schedule C line is in our freelancer deductions guide. The ones agents most often ask about:
| Expense | Treatment | Where it comes from |
|---|---|---|
| Commissions and fees you pay, for example to your brokerage | Commissions and fees line on Schedule C | Schedule C instructions, line 10 |
| Liability insurance, including errors and omissions coverage if it qualifies | Liability insurance premiums are deductible business insurance | Publication 334, Insurance |
| Client gifts | No more than $25 per person per year | Publication 463, chapter 3 |
| Meals with clients | 50% of business meal expenses | Publication 463, chapter 2 |
| Driving to showings and meetings | Deductible in the cases in Publication 463 | Publication 463, chapter 4 |
| Home office | Deductible if you meet the tests | See the home office guide |
| Pre-licensing courses | Generally not deductible | Publication 970, chapter 11 |
Commissions and fees you pay, for example to your brokerage
- Treatment
- Commissions and fees line on Schedule C
- Where it comes from
- Schedule C instructions, line 10
Liability insurance, including errors and omissions coverage if it qualifies
- Treatment
- Liability insurance premiums are deductible business insurance
- Where it comes from
- Publication 334, Insurance
Client gifts
- Treatment
- No more than $25 per person per year
- Where it comes from
- Publication 463, chapter 3
Meals with clients
- Treatment
- 50% of business meal expenses
- Where it comes from
- Publication 463, chapter 2
Driving to showings and meetings
- Treatment
- Deductible in the cases in Publication 463
- Where it comes from
- Publication 463, chapter 4
Home office
- Treatment
- Deductible if you meet the tests
- Where it comes from
- See the home office guide
Pre-licensing courses
- Treatment
- Generally not deductible
- Where it comes from
- Publication 970, chapter 11
Sources as shown, opened October 14, 2026. MLS and association dues, license renewals, advertising, signs, software and phone are ordinary business costs covered in the deductions guide.
The Schedule C instructions say line 10 is the total commissions and fees for the tax year, and that you don’t include amounts capitalized or deducted elsewhere. If part of your gross commission goes to the brokerage, check whether your 1099-NEC shows the amount before or after that share, and make the total on your return match your own records. The 1099-NEC vs. 1099-K guide explains how the forms work and what to do when they don’t match.
Driving to showings
Driving is one of an agent’s largest deductions. Publication 463 draws a line between commuting and business driving. It says transportation between your home and your main or regular place of work is a personal commuting expense. If you have a regular work location away from home, such as a brokerage desk, daily trips from home to a temporary work location in the same trade or business, like a showing, can still be deductible.
In plain terms: the drive from home to the brokerage desk you use every day is commuting. The drive from home to a showing, a listing appointment or a closing can be a business trip, even if you also have a desk at the brokerage. How you get the office to qualify is in the home office guide. For the deduction itself, the IRS standard mileage rate for 2026 is 72.5 cents a mile for January 1 through June 30 and 76 cents from July 1 through December 31, per the IRS rates page. Our mileage guide covers logs and the standard-versus-actual choice, and our mileage calculator applies both rates.
Gifts and meals
Closing gifts are a habit in the business and the tax rule is narrow. Publication 463 says you can deduct no more than $25 for business gifts you give, directly or indirectly, to each person during your tax year. Anything above $25 per person isn’t deductible. Meals with clients, separate from gifts, are limited to 50% of business-related meal expenses, per the same publication, unless an exception applies.
Licensing and education costs
New agents are often surprised that the pre-licensing course generally isn’t deductible. Publication 970 says that education isn’t qualifying work-related education if it’s needed to meet the minimum educational requirements of your present trade or business, or if it’s part of a program of study that will qualify you for a new trade or business. A pre-licensing course is the usual example of both, so ask your preparer before you deduct one. Continuing education to maintain your license once you’re working is a different category, which the IRS treats as qualifying when it maintains or improves skills needed in your present work. See our startup costs guide for what a new agent can recover from the months before the first closing.
A full year, with numbers
Here is a hypothetical agent: single, no other income, no employees, the 2026 standard deduction, with the vehicle deduction from 11,500 business miles plus $380 of parking and tolls. The 11,500 miles are spread across the two mileage-rate periods by days, which gives $8,540 of mileage, so $8,920 with parking and tolls. The amounts are made up for illustration.
| Amount | |
|---|---|
| Commissions received | $148,000 |
| Brokerage splits and fees | -$32,000 |
| MLS, association dues, license renewals | -$4,600 |
| Errors and omissions insurance | -$1,900 |
| Marketing, signs and photography | -$9,800 |
| Client gifts (60 clients at $25) | -$1,500 |
| Meals with clients, 50% of $2,200 | -$1,100 |
| Vehicle: 11,500 business miles, parking and tolls | -$8,920 |
| Home office, simplified method | -$1,500 |
| Phone, CRM and software | -$2,600 |
| Accountant | -$900 |
| Continuing education | -$600 |
| Net profit | $82,580 |
| Self-employment tax | $11,669 |
| Federal income tax after QBI deduction | $5,574 |
| Total federal tax | $17,243 |
| Share of profit | 20.9% |
Commissions received
- Amount
- $148,000
Brokerage splits and fees
- Amount
- -$32,000
MLS, association dues, license renewals
- Amount
- -$4,600
Errors and omissions insurance
- Amount
- -$1,900
Marketing, signs and photography
- Amount
- -$9,800
Client gifts (60 clients at $25)
- Amount
- -$1,500
Meals with clients, 50% of $2,200
- Amount
- -$1,100
Vehicle: 11,500 business miles, parking and tolls
- Amount
- -$8,920
Home office, simplified method
- Amount
- -$1,500
Phone, CRM and software
- Amount
- -$2,600
Accountant
- Amount
- -$900
Continuing education
- Amount
- -$600
Net profit
- Amount
- $82,580
Self-employment tax
- Amount
- $11,669
Federal income tax after QBI deduction
- Amount
- $5,574
Total federal tax
- Amount
- $17,243
Share of profit
- Amount
- 20.9%
Hypothetical amounts. Single filer, no other income, 2026 standard deduction, QBI deduction of $12,129, federal tax only, no state tax. The vehicle line uses our mileage calculator's 2026 rates with miles spread by days. Business expenses outside the brokerage fees total $33,420 and cut federal tax by $10,000 compared with having none.
At that profit, a quarter of the year’s tax is about $4,311, which is the starting point for the estimated payments. The share is 20.9% of profit, so setting aside about a fifth of profit from each commission, plus your state’s tax, is a workable rule, and the set-aside guide shows how to refine it. Agents with a few large closings spread over the year should read the annualized method guide, since a commission that lands in the fourth quarter changes what you owed in the first three.
QBI and real estate agents
The qualified business income deduction is worth 20% of your qualified income up to the limits in the QBI guide. Above the income threshold, $201,750 of taxable income for a single filer in 2026, and its phase-in range, which ends at $276,750, a specified service business gets no deduction. The Form 8995-A instructions list brokerage services, meaning people who arrange transactions between a buyer and a seller of securities for a commission, and they say it excludes services provided by real estate agents and brokers. So a real estate agent isn’t treated as a specified service business under that field.
What that means in practice: below the threshold, as in the example above, nothing changes and the $12,129 deduction applies in full. Above it, an agent’s deduction can still be reduced to the greater of 50% of the business’s W-2 wages or 25% of W-2 wages plus 2.5% of the unadjusted basis of qualified property, per the Form 8995-A instructions, but the specified service rule does not apply. An agent who pays an assistant on a W-2 can see wages matter, and an agent who works alone has no wages to count and may have little property.
Structure, health insurance and retirement
Agents often ask about forming an LLC or an S corporation once commissions climb. The paying yourself guide explains owner’s draws, the reasonable compensation requirement and what an S corporation costs, the S corporation guide shows the comparison at one profit level, and the LLC guide covers what an LLC does and doesn’t change. Health insurance premiums can be deducted above the line if you meet the eligibility rules, which the health insurance guide covers, and a retirement plan lowers income tax, which the retirement plans guide compares.
Records
- A log of each deal with the date you were paid, since the payment date decides the year.
- Mileage with date, destination and purpose, and the receipts for parking and tolls.
- Receipts for gifts, with the recipient’s name, so the $25 limit is easy to check.
- Brokerage statements showing splits and fees, to match against your 1099-NEC.
- Dues, insurance and license renewals, with the date each was paid.
How we got these figures
The statutory nonemployee conditions come from the IRS pages on licensed real estate agents and on statutory nonemployees. The cash method, constructive receipt, the check example, the ordinary and necessary test, the personal part of an expense and the insurance deduction come from Publication 334 (2025). Line 10 comes from the 2025 Schedule C instructions. The gift limit, the 50% meals limit, commuting and the home office exception come from Publication 463 (2025), the education rules from Publication 970 (2025), and the exclusion of real estate agents from the brokerage services field from the 2025 Instructions for Form 8995-A. The 2026 mileage rates come from the IRS standard mileage rates page. The exact excerpts are in docs/extractos-citas-2026-10.md. We opened them on October 14, 2026. The example is hypothetical and its tax figures are our own arithmetic from the same federal functions our calculators use. We didn’t cover state taxes, licensing fees by state, commission splits at specific brokerages, or agents who are W-2 employees. For how we choose sources, see How We Research.
This is general information, not tax or legal advice for your situation. Whether you are a statutory nonemployee depends on your contract and how you’re paid, so confirm it with a tax professional.
