An essential strategy for building wealth is lowering your tax burden, which cuts into capital gains.
Since many realtors are self-employed, they often manage their own taxes and face a significant tax burden each year.
There are several tax strategies and loopholes that realtors can specifically take advantage of to lower their burden and pocket more money, including pass-through deductions, deducting mileage, and gaining professional real estate status.
This article unveils six lesser-known tax strategies that have helped the wealthiest realtors maximize their profits.
What Exactly are Tax Loopholes?
Tax loopholes are provisions in the tax code that provide opportunities to reduce tax liability. For realtors, tax loopholes are the keys to unlocking strategies that keep more profit from each transaction and investment.
The Power of Tax Loopholes for Realtors
Realtors operate in a unique business environment where income can be highly variable and dependent on market conditions. In this landscape, tax loopholes serve as critical tools for:
- Enhancing Cash Flow: By reducing tax liabilities, realtors can ensure a more consistent and fluid cash flow.
- Encouraging Investments: Some tax loopholes promote investment in properties, renovations, and community development.
- Providing Competitive Edge: In a highly competitive market, the ability to navigate and leverage tax codes effectively can give realtors an edge, allowing for more aggressive pricing strategies and better investment returns.
How to Navigate and Leverage Tax Loopholes
Leveraging tax loopholes requires diligence, foresight, and, sometimes, creativity. Here’s how you can start:
- Stay Informed: Tax laws evolve, and staying informed of the changes is crucial. Regularly consulting with tax professionals or attending seminars can provide insights into new and existing loopholes.
- Keep Immaculate Records: Proper documentation is key. Detailed records can provide the foundation for leveraging tax loopholes effectively.
- Understand the Implications: Understanding the long-term impact of leveraging a loophole is crucial to ensure it aligns with your overall financial strategy.
- Consult with Professionals: The complexity of the tax code often necessitates professional advice. A trusted accountant or tax advisor specializing in real estate can provide tailored strategies that align with your goals and risk tolerance.
6 Tax Loopholes Realtors Can Leverage to Their Advantage
1. Pass-Through Deductions
Real estate professionals benefit tremendously from pass-through deductions, which were recently introduced with tax law revisions.
These deductions allow owners of pass-through entities to retain a higher percentage of their income by lowering their taxable bracket considerably.
Understanding Pass-Through Entities and Their Tax Implications
Pass-through entities include structures like sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations. Unlike corporations, these entities don’t pay income taxes at the business level.
Instead, the income ‘passes through’ to the business owners or partners, who then report it on their personal tax returns. While this avoids the double taxation faced by C corporations, it also subjects the income to individual tax rates.
The Impact of Pass-Through Deductions
The Tax Cuts and Jobs Act introduced the Qualified Business Income (QBI) deduction. This tax break allows eligible taxpayers to deduct up to 20% of their qualified business income from a pass-through entity. Deducting this income lowers the maximum tax rate, which reduces the tax burden that realtors face.
Maximizing Your Benefit from Pass-Through Deductions
To fully leverage pass-through deductions, consider the following guidelines:
- Know Your Eligibility: Not all business income qualifies for the QBI deduction. You must typically earn it in the U.S. After reaching a certain income threshold, service-based businesses face additional limitations.
- Understand the Limitations: This deduction comes with phase-out thresholds that can reduce or eliminate the deduction for higher earners. Additionally, the deduction can be limited based on the amount of W-2 wages paid by the business.
- Strategize Your Income: If your income approaches the phase-out thresholds, consider deferring income or accelerating deductions to maximize your eligibility for the QBI deduction.
- Consider the Structure of Your Business: The structure of your real estate business can significantly impact how much you benefit from pass-through deductions. Consult with a tax professional to determine the most advantageous structure for your specific circumstances.
- Stay Informed and Compliant: Tax laws and interpretations evolve swiftly. Regular consultations with tax advisors can help you navigate these changes and remain compliant.
For realtors and professionals navigating the complex realm of real estate investments, the pass-through deduction offers a promising avenue for tax optimization.
2. Home Office Deductions
Another way for realtors to save on taxes is to transform part of their home space into a qualifying home office.
To qualify for the home office deductions, you must meet the IRS criteria. Here are the fundamental requirements you must satisfy:
- Regular and Exclusive Use: You must exclusively and regularly use your home office to conduct business. Don’t mix personal activities with professional ones in this space.
- Principal Place of Your Business: Your home office should be the principal place where you conduct your business. This can include administrative activities, even if you meet clients or perform real estate services elsewhere.
Once you qualify for the home office deduction, the goal is to maximize it by keeping meticulous records, documenting all expenses, and choosing the deduction method—simplified or regular—that yields the greatest benefit.
Track your office size, utilities, mortgage interest or rent, repairs, and maintenance, and consider depreciation if you own your home (while keeping future tax implications in mind). Maintain clear, organized documentation to support your claim if audited, and stay current with IRS rule changes to ensure your deductions remain accurate and compliant.
3. Travel Expenses and Mileage
For realtors, your vehicle is one of your most valuable business tools. Client meetings, showings, listing tours, and industry events all qualify as deductible mileage when properly tracked.
To make the most of the deduction, follow IRS guidelines. The 2025 standard mileage rate is $0.70 per mile, covering gas, maintenance, and vehicle wear.
Keep accurate, real-time records using a logbook or mileage app, and remember that only business mileage counts. Trips to meet clients or view properties qualify, but commuting from home to your office does not.
4. Hiring Family Members
Hiring family members can be a smart tax move for realtors, but only when done correctly. Paying a spouse or child for legitimate work allows you to shift income into lower tax brackets, deduct their wages as a business expense, and—depending on your business structure—potentially avoid FICA or FUTA taxes for younger children.
To stay compliant, treat them like real employees: document job duties, track hours, follow labor laws, and issue proper payroll reports.
With the right structure, hiring family members can also open the door to additional benefits like retirement plan contributions or funding education accounts.
Done right, it’s a simple way to keep earnings in the family and reduce your overall tax bill.
5. Insurance Premium
As a realtor, you can also reduce your tax burden by claiming the insurance premium deduction. The premiums you spend every month to protect your business and your health can lower your taxable income.
- Health Insurance Premiums: Self-employed realtors can deduct 100% of their health insurance premiums for themselves, their spouse, and dependents. This deduction adjusts your income whether you itemize deductions or not.
- Professional Liability Insurance: Premiums paid for professional liability insurance are fully deductible as business expenses.
- Property Insurance: You can also deduct insurance premiums for property used in your business, such as your office space or a car, as a business expense.
- Workers’ Compensation Insurance: If you have employees, the premiums for workers’ compensation insurance are deductible business expenses.
The key is documentation: only deduct premiums tied to your business activity and maintain records of every payment. If you or your spouse are eligible for employer-subsidized health coverage, that may limit your ability to deduct your own premiums. A tax professional can help you structure these deductions correctly and avoid common mistakes.
6. Gaining Real Estate Professional Status
Earning Real Estate Professional Status (REPS) is one of the most powerful tax advantages available to active real estate professionals. If you spend at least 750 hours per year and more than half your working time materially participating in real estate, the IRS allows you to treat rental losses as active rather than passive.
REPS can help you avoid the 3.8% Net Investment Income Tax and amplify the benefit of depreciation deductions on rental properties.
Success with REPS comes down to meticulous record-keeping and a solid understanding of the IRS participation rules. Some investors also group multiple properties into a single activity to meet the requirements more easily.
For high-earning realtors or investors with growing portfolios, REPS can be a cornerstone tax strategy—one that unlocks deductions most people never get to use.
Mastering tax strategy is one of the most powerful ways realtors can protect their income and build long-term wealth.
Whether you’re hiring family members, deducting insurance premiums, tracking mileage, or pursuing Real Estate Professional Status, the goal is the same: keep more of what you earn and use the tax code to your advantage.
With the right guidance and a proactive approach, these strategies become simple, repeatable systems that strengthen your financial foundation year after year.
Tax Loopholes FAQs
What Expenses Can You Deduct for a Home Office?
If you regularly conduct business from your home, the expenses you can deduct include the following:
- Mortgage interest
- Utility payments
- Maintenance
- Depreciation
- Insurance
What Items Don’t Count as Qualified Business Income (QBI)?
Before you claim the 20% QBI deduction, keep in mind that you can’t deduct the following items:
- Wage income
- Capital gains or losses
- Qualified REIT Dividends
- Business income from outside the United States
- Interest income that you’re unable to allocate to your business
What Is the 2025 Phase-Out Threshold for the Pass-Through Deduction?
In 2025, the amount of the pass-through deduction that you qualify for starts phasing out once you meet the threshold of $197,300 for individuals and $394,600 for joint filers.
How much can hiring a family member really save me in taxes?
It depends on your tax bracket, business structure, and the wages paid. Many realtors save hundreds to thousands per year by shifting income to a lower tax bracket and eliminating payroll taxes for qualifying children.
What records should I keep for mileage and travel deductions?
Maintain logs showing date, purpose, destination, and mileage for every business-related trip. Digital tracking apps make this easy and provide IRS-ready documentation if you’re ever audited.
How do I know if I qualify for Real Estate Professional Status?
You must meet IRS requirements, including 750 hours of material participation and spending more than half of your total working hours on real estate activities. A tax professional can analyze your work patterns and help you plan toward qualifying.
Can I deduct insurance premiums even if I don’t itemize?
Yes, self-employed health insurance premiums are an above-the-line deduction, meaning they reduce your taxable income whether or not you itemize. Other business-related insurance premiums are deducted as operating expenses.