Every year there are new trends entering the real estate finance market.  Generally, these trends are based on the socioeconomic and political factors the country faces that year. This year there are some new aspects to pay attention to when it comes to real estate finance. In 2019, keep an eye out for millennial buyers, higher prices, affordability challenges, higher mortgage rates, and a focus on secondary cities.

Millennials Enter The Market

Those born between 1981 and 1997 are known as millennials, and in 2019 they make up a large group of home buyers. In this economy, we are seeing more and more people taking up that “paycheck-to-paycheck” life.  This makes it harder for buyers to save up the funds to purchase their first home. However, with rising rental rates in urban cities, some are choosing to move into surrounding suburbs. Moving from an urban landscape to living in the suburbs and commuting is becoming more common for millennial homebuyers. This trend is fueling a shift in the entire real estate finance market as ‘18-hour’ cities become more prominent buyers’ markets.

Prices Continue Going Up

After a huge jump in prices from 2017-18, buyers will be happy to hear that home prices are only expected to rise by about 1% in 2019. New home construction will also go up to around 8%, which is good news since inventory is low in many US cities. Since many modern buyers are interested in new home construction it’s likely that price increases will be seen across the board for new homes. Buyers looking for a bargain will likely buy an older home and upgrade as they go. While house flippers may have more trouble closing quick deals post-renovation.

Secondary Cities

A convergence of activity is pushing investors to focus on what Forbes refers to as secondary cities. Cities such as Dallas Austin, Texas, Atlanta, Georgia, Nashville, and Tennessee are all considered secondary. These cities are being chosen for companies as they exit higher priced states like California opting for less expensive, more corporate forward states. With huge campuses like Apple in Austin and Lyft in Nashville, come employees. These employees will either be renters or home-buyers, both of which surge the real estate economy in these areas. This year we will continue to see a healthy real estate economy in secondary cities.

Affordability Challenge

As mentioned above, home prices have been on the rise for years, and they’re not stopping in 2019. Layer this on top of the fact that in 80% of cities the housing price has increased without a wage increase. Because of this, renting will continue to be the affordable option. This is especially true in Las Vegas, San Jose, Portland, New York, and other strong markets. Investors will have luck on large housing projects like apartments and community living spaces. Focus on a renters market for investments, and look outside of cities for single-family home sales.

Higher Mortgage Interest Rates

Analysts have predicted that long stagnant mortgage rates will start to rise in 2019 from 4.5% on a 30-year fixed mortgage to around 5%. That will put mortgage rates at their highest in seven years.  It’s a fact which will make buyers more discerning and offers less frequent. It will take houses a bit longer to move, and buyers should opt for 15-year mortgages. Also, to be safe, investors should expect lower IRR.

As a real estate agent, it’s important to stay ahead of the real estate finance trends. Some are disheartening like higher mortgage rates and prices. But there’s some hope in new buyers entering the market and new cities becoming more prominent. Understand these trends can get you closer to closing deals faster. And if you can’t wait for closing after a signed contract, real estate agents can always rely on Payfully to offer an advanced commission on real estate.

Learn more about the benefits of an advance commission from Payfully.

The more you know about how taxes work, the better off you’ll be during tax season. How to file taxes as a real estate agent isn’t the simplest process, however, we have tips that can make it easier. Many real estate agents figured out that being in this industry means that you wear a lot of hats. You are agents above all else, but you find yourself doing marketing and advertising work, or keeping the books in order. With this in mind, it makes sense that come tax season realtors are opening up their 1099 forms and preparing to file their own business taxes. Calculating income tax payments takes preparation and understanding of tax code. However, this can be easier with a little research and the right tax software.

What Is Form 1099?

There are around 20 types of 1099 forms. Various types of income inspire the need for a 1099 form to be filed. Money made off of commodity trading, forgiven debt, changes in capital structure, distributions of capital gains, unemployment benefits, interest income, and more types of income need to be filed with the IRS by tax day. Most Independent Contractors will receive a 1099-MISC from their broker. Any broker that pays their agent more than $600 will file a 1099-MISC for you. Your 1099-MISC will include each individual commission made throughout 2018. If the total of one commission is under $600, then it is not taxable, but you must still include it when it filing your business taxes for the year.

Income Tax Calculations

Some new real estate agents get nervous staring at their 1099-MISC and wondering what to do next, but don’t worry it’s as simple as high school Algebra.

A realtor must calculate the following to complete their taxes:

    • 2018 Net income
    • Total deductions
    • Self Employment Tax
    • Personal Exemption
    • Tax Credits

    • Total Estimate Federal Tax Due

Once those numbers are plucked from your paperwork calculating quarterly income tax payments will be a breeze.

Itemized Deductions

Keeping track of mileage, office expenses, and other purchases that can be deducted is essential for real estate agents. Agents are able to deduct lots of their expenses from their net worth before calculating income tax payments.

These are some essential real estate agent deductions to track throughout the fiscal year:

  • Gas, Mileage, & Vehicle Expense
  •  Marketing & Advertising
  • Desk Fees
  • Home Office & Supplies
  •  Meals, Entertainment, & Refreshments
  •  Software & Business Tools
  • Networking & Continued Education
  • Insurance, Fees, Memberships

Tracking purchases can be more streamlined than keeping a bag of receipts. There are apps that can track & categorize mileage before actually putting it into an easy-to-read spreadsheet. Some real estate tech lets you store pictures and information about receipts throughout the year to keep data safe and readable. Itemizing your deductions is a necessary step for any real estate agent filing taxes. Moreover, being prepared and keeping track throughout the year can make the process of compiling and reporting deductions easy as pie.

Choosing The Righ Tax Software

With quippy marketing campaigns and ultimate branding, the stress of picking a tax software can sometimes be immense. For someone who is self-employed, choosing the right software can mean saving a hundred or so dollars. We took a look at some of the best breakdowns of real estate tax software to help you figure it out. For the best support, H&R Block is the way to go. It costs around $200 for self-employment with all the fixin’s. This tax software would be the best option for someone looking to pay for a strong support team and savvy interface.

For a more frugal agent, TaxSlayer offers quality tech for a low price.  Tax help, a great app, and even Audit Assistance are included in the Self-Employed software which retails around $50. If you want a completely hands-off approach, Bench will handle all of your bookkeeping, and package up your deductions, revenue and expenses for your CPA.

Know You Business Finance

Being a good real estate agent means being flexible in a malleable industry. Part of that challenge is being able to be intelligent when managing business finances. Know about taxable income, understand the tax payments ahead, itemize all deductions, and always take the time to choose the right tax software. This will point any realtor to success when filing your taxes this year.

Self-employment tax (SE Tax) is a combination of Medicare and Social Security Tax paid out by people who qualify as self-employed. The W2 employed pay half of this tax on their paycheck throughout the year. But for the self-employed, you cough up the SE Tax after processing taxes for the year. A lack of understanding if you’re paying too much and not taking advantage of tax deductions for real estate agents can hurt your finances in the long run. Real estate agents fall under the category of self-employed, which is why many will budget for their tax payment throughout the year.

Another preparation that successful real estate agents never pass by is tracking their expenditures and bills to deduct from their tax payment when they file. Startup expenses, advertising, continued education, travel & automobile expenses can all be counted as deductions on our tax return. Even a percentage of our cell phone might be deductible. The most prominent tax deductions for real estate agents are the home office deduction and the travel deductions. For a comprehensive list, read this. 

Calculating SE Tax

Before even calculating deductions you should calculate your SE Tax payment. To do this, start with projecting your yearly income on the job. Take last year’s earnings and compare, if things are going the same way as last year then use that number. Once you have the amount, multiply it by 0.153 to calculate the SE tax payment at the Federal rate of 15.3%. From there, there is a self-employment tax deduction of 50%.

So, calculating the SE Tax would look like this:

(Yearly Earnings x 0.153)/2 = SE Tax

The number that you produce from that equation is the starting number for your SE Tax before deductions.

Home Office Deduction

First and foremost a home office can only be deducted if it is used absolutely exclusively for the business. To begin with the home office deduction you should fill out IRS Form 8829, but for those operating in an office space under 300 square feet, there is another option. The IRS lets those who want to deduct $5 per square foot, the caveat is that it caps out at $1500.

After this, you should take a look at the rules to claim your home as a home office:

    • You meet clients at home.
    • A separate structure on your property is used as an office.
    • You exclusively use your home for business and have no other fixed location for this.

    • Your principal place of business is in your home office.

If all of these or even just one of these apply, then you’re officially set to deduct your home office, and expenses therein, from your SE Tax payment.

Travel & Mileage

Agents very frequently find themselves driving clients all over town, floating through rush hour traffic to put up or take down signs, bustling around for open houses, and more. Basically, driving around town is just a part of the job. In 2018 the tax deduction was $0.58 per mile on business travel.

To get the biggest deduction we need to track our mileage when going to meet clients, pick up supplies, drive from the office to the brokerage, etc. The IRS does have specifications for logging business miles, they’ll need:

    • Date of travel
    • Mileage
    • Places you drove

    • The business purpose of the trip

Some agents also track their gas mileage to maximize their travel deduction, but the gasoline log and mileage log aren’t exactly the same. For those looking to apply the gas deduction, be sure to keep all gasoline receipts in case the IRS decides to audit you.

Once we’ve calculated our prospective tax payment we should also take a look at what deductions we might be aiming for. Don’t pay too much, be prepared and apply all relevant tax deductions for real estate agents.

For more helpful tax tips, read the 5 Costly Tax Mistakes Real Estates Agents Make. 

To the federal government, real estate agents are sole proprietors or self-employed. This means that when it’s time to file taxes a broker will generally send over a 1099 form. It’s at this point that an agent will have to pay taxes on their commissions for the year. This can sometimes be a costly process. Avoiding huge tax payments and ensuring the ultimate deductions can be easy if you follow some simple tips.

Commission Split

Most real estate agents calculate their possible income for the following year. When doing these calculations it’s very important to pay attention to the commission split agreed upon with your broker. A successful real estate agent will save for their tax payments throughout the year.  However, if they are using the incorrect commission split it’s possible they haven’t been saving enough. If this does happen some agents will end up gouged by their tax payments. Be sure to know your broker commission split before calculating your budget and taxes.

Knowing Your Deductions

One of the most essential components of filing as a 1099 employee is to understand and apply all possible deductions. Generally, an independent contractor will file for a 1099. With that distinction, your taxes aren’t removed from your commissions—a real estate agent falls into this category. Many are costing yourselves big time by not researching every available tax deduction for real estate agents.

Real Estate Tech

There are software companies that provide accounting services to entrepreneurs and small business owners. One of the most well-known and widely used tax software is Quickbooks. However, as the tech industry advances there are new, more niche companies emerging. RealtyZam is an accounting software built just for real estate agents. Track expenses and generate tax reports in just moments with this must have real estate tax software.

Mileage Tracking

Many real estate agents are attracted to the freedom that comes with working independently out of a brokerage. But with this freedom comes a lot of driving. Driving clients to viewings, open houses, and to your brokerage for paperwork can all add up. Before modern technology, you were stuck keeping diaries to track this driving. Now you can simply download an app that will track and organize your trips into the ‘Work’ or ‘Personal’ category. Everlance is one mileage tracking app that doesn’t only keep count of our work trips, but can also generate easy to read reporting and spreadsheets.

Self-Employed Health Insurance

One of the costs of self-employment is health insurance. Without an employer there isn’t any coverage, so your health insurance comes out-of-pocket. With the Self-Employed Health Insurance deduction, you don’t have to itemize individual receipts to deduct your premium. In order to do this, your business must turn a profit in the last fiscal year. Another rule is that you shouldn’t collect any form of group health insurance to be eligible for this lucrative tax deduction for real estate agents. For those that fit the bill, this can be a must-cite deduction to avoid costly tax payments.

While for some these tips are basics, it’s essential to stay organized and manage your time all year to ensure the lowest tax payments. Being a real estate agent implies freedom and entrepreneurship, but to be successful you must also be ultra-organized. Luckily, in most accounting cases you can download some tech to help.

Around tax season many real estate agents find themselves stressed. Between gathering their receipts to organizing their write-offs, many tax tips for real estate agents start and end with hiring a professional accountant. But having a CPA on staff isn’t something that every agent can afford. With that in mind, these tax tips can help an agent who has a CPA and an agent who is filing on their own this year.

What is a 1099 Form?

Anyone who is paid by a person or entity should be filling out a 1099 tax form, and there is more than one type of 1099. There are 1099s from the bank for interest paid on our account. Some will get the form from the entity that pays their IRA or even from the state who paid your tax return out last year. Freelancers also often get 1099 forms from their clients in the first weeks of the new year.

A real estate agent who is an independent contractor will generally get a 1099 form from their brokerage. The receipt of this form means that there were no taxes withheld from our commissions. But it also means that it’s time to pay up on that income. For this reason, it is recommended that agents keep track of all possible tax deductions throughout the year. This includes mileage traveled, home office & other business expenses, and more. This is the most important tax tip for all real estate agents. Now that you know expenses can be deducted, keep track of them so you don’t have to scramble during tax season.

Build A Good Foundation

Budgeting our business and organizing our time can be the best foundation for an entrepreneur. Being on top of our time management with techniques like batching can help us monetize our time and ensure we’re making the most of every day. Time management can also ensure we have our tax paperwork organized and sent to our accountant expediently each year.

Before even setting a budget we should take a very hard look at our business.

  • What is our yearly and monthly revenue?
  • What expenses can we expect in these time frames?

Subtract the revenue from the expenses and this will be your profit. Once you are aware of your profit you can use that number to calculate your potential tax bill. Knowing in advance what type of cash you need to be putting aside each month for taxes can help ensure that you don’t get sideswiped by a huge bill in April. It is also important to reassess your budget monthly to ensure that the amount hasn’t changed.

Take Advantage of Real Estate Tech

Being able to track business expenses for the tax man throughout the year has been a yearly challenge for many. But now, there’s an app for that. Everlance is a slice of real estate tech that every agent can get behind. The app is built for self-employed entrepreneurs in mind. Everlance will track our business mileage and each of our individual business expenses to maximize our tax deduction come the new year. Aside from these easily applicable uses, Everlance will also help us know the taxes to pay and when. It will also compile and send all of our information to our accountant when it’s time to file.

Everlance isn’t the only real estate tech built to help during tax season. QuickBooks can also streamline our yearly business filing. As we mentioned, not every entrepreneur can bring on their own CPA and QuickBooks is built by people that understand that. You can keep all of your accounting, expenses, payroll and more in one place using this software. It will even let you connect your bank accounts to categorize transactions and ensure the most optimal deductions. Use the analytics, and always know where the business stands. Lastly, real estate agents without a CPA can e-file taxes through software like TurboTax, a company that guarantees you get your biggest possible tax return. With the help of this software and technology, you can be sure you’ll be ready for taxes come filing time.

With the help of apps, tracking purchases and expenses throughout the year becomes easy. Just be sure to know a 1099 form from the inside and out so that you can get the biggest tax return possible as a real estate agent.