Most real estate agents in California work as independent contractors, which means the IRS treats the business like a sole proprietorship. That opens up a wide range of deductions, and California generally follows federal rules for business expenses. Here are the categories that matter most.

Vehicle expenses are usually the biggest deduction for agents. You can use the standard mileage rate (67 cents per mile for 2024) or track actual expenses like gas, maintenance, insurance, and depreciation. Most agents come out ahead with the mileage method, but you have to keep a log showing date, destination, business purpose, and miles driven. Driving to showings, open houses, inspections, closings, and client meetings all count. Commuting from home to a regular office does not.

Marketing and advertising are fully deductible. That includes online ads, social media promotion, postcards, business cards, signage, website costs, video production, and lead generation subscriptions. If you pay for Zillow Premier Agent or Realtor.com leads, that counts. So does sponsoring a little league team in Pasadena or running ads in a local publication.

MLS fees, board dues, Realtor association dues, and brokerage desk fees are deductible as business expenses. Same with license renewal costs and continuing education required to maintain your license. Coaching, training programs, and industry conferences qualify too.

Home office is deductible if you have a dedicated space used regularly and exclusively for business. You can use the simplified method ($5 per square foot up to 300 square feet) or calculate actual expenses based on the percentage of your home used for business. California treats the home office deduction the same way as the federal return.

Client gifts are capped at $25 per person per year on the federal side. A $200 closing gift to a client is deductible up to $25. Branded items that cost under $4 and have your name on them (pens, notepads) don’t count against the $25 limit.

Professional photography, drone footage, virtual tours, and staging costs are all deductible when used to market listings. These add up fast and are often overlooked.

Professional services are deductible. Your bookkeeper, CPA, transaction coordinator, virtual assistant, and any lawyer fees related to your business all count. Commission splits paid to your team members or referral fees paid to other agents are deductible as well.

Health insurance premiums, retirement contributions to a SEP IRA or Solo 401(k), and phone and internet costs (business percentage) round out the common deductions most agents claim.

The documentation piece is where most agents lose money. Mileage logs need to be contemporaneous, not reconstructed at year end. Receipts matter for anything over $75. Mixing personal and business purchases on the same card makes tax time a mess. Setting up proper categorization and keeping a clean separation between personal and business finances is half the battle, which is why having bookkeeping support in Pasadena pays for itself in found deductions and avoided headaches.