The answer is yes, real estate continuing education is tax deductible, provided you meet a couple of requirements.
First, the continuing education must be required for continued licensure or advancement within your current profession, or it must maintain or improve job skills in your current profession.
Second, the continuing education cannot be something that qualifies you for a new profession. The continuing education also cannot be the minimal level of education required to work in your business.
Generally, you won’t be able to deduct the cost of obtaining your first real estate license (though your broker may be willing to reimburse you for the initial cost of licensure).
Deductions for Real Estate Continuing Education
What real estate continuing education expenses can be deducted?
Real estate agents can deduct the following continuing education expenses:
- Tuition costs
- Books and supplies
- Research costs
- Transportation and travel costs to get to the site of the continuing education (within limits)
How do you go about deducting real estate continuing education costs?
If you are working as a statutory employee (that is, you receive a W-2 rather than a 1099 and your employer withholds taxes), you should file an IRS Form 2106, Employee Business Expenses. There’s also an EZ form if you don’t itemize your expenses and you only have one job.
If, like most real estate agents, you are an independent contractor and you don’t operate your own business, you should file a Form 1040, Schedule A.
The disadvantage to both of these solutions, however, is that you are subject to the 2 percent of annual income threshold. For example, if you earned $50,000 last year, and have no other deductions, you have to spend $1,000 to qualify.
A better way might be to report the expense on your Schedule C (Profit or Loss from Business) or Schedule C-EZ. By using this method, you aren’t subject to the 2 percent threshold, and you should be able to deduct the entirety of your real estate continuing education expense against income.
Broker’s License Requirements Are Not Deductible
You generally cannot deduct the cost of taking your initial real estate broker’s license exam, including prep costs and the fees to take the test itself. This is true even for those who are already working as real estate salespeople or property managers.
Blame the U.S. Tax Court – specifically in Johnson v. Commissioner, 77 T.C. 876 (1981). This was a federal court decision in which the judge held that even though the broker’s license was an advanced version of the real estate license, it did, in fact, qualify the real estate agent for an entirely new profession.
Key to the judge’s decision: A California law required that real estate salespersons must be employed by a real estate broker. This, with a few other findings, convinced the judge that the duties and responsibilities of a real estate broker and agent were different.
Furthermore, in this case, the petitioners had enrolled in the real estate broker’s pre-licensing course and took the exam for the purpose of opening their own brokerage, rather than advancing with their current employer.
A combination of factors led the court to rule that while most real estate continuing education deductions would not cause a problem, including deductions for education-related and transportation expenses, real estate courses designed to transition the individual from agent to broker would not qualify.
Invest in Your Own Continuing Education
So what are your options for obtaining real estate continuing education?
Convince your broker to help pay for the course. You may have to sign a contract to stay on for a certain period of time, if your current employer can use someone else in the office with a broker’s license. Employers can generally deduct some limited educational expenses for their employees. For more information on tax deductions for employers, see IRS Publication 970.
You may also use the Lifetime Learning Credit.This benefit provides a tax credit equal to 20 percent of the first $10,000 of qualified postsecondary education expenses, up to a max of $2,000 per taxpayer. This includes tuition and fees for expenses used to acquire or improve job skills.
There is an income limitation, though: The benefit starts to phase out for single taxpayers with income over $53,000, and phases out completely at $63,000. For married taxpayers, the benefit phases out completely at $127,000. To determine if you are eligible for the Lifetime Learning Credit, or possibly some other federal tax benefit related to education, click here.
Disclaimer: This information is for general informational purposes only. Tax planning is highly dependent on your individual set of facts and circumstances. We recommend that you seek the services of a qualified and licensed tax professional to get advice on your specific situation.