I open & manage new retail stores for my employer. I got my real estate license to help my employer open more locations. Can I deduct the real estate license expenses?

[TomD8 · Accepted solution]

If you're paid as an employee (you receive a W-2 at the end of the year), and you itemize deductions, you can deduct unreimbursed business expenses that are "ordinary and necessary" on your Schedule A.

An expense is ordinary if it is common and accepted in your trade, business, or profession. An expense is necessary if it is appropriate and helpful to your business. An expense doesn't have to be required to be considered necessary.

This type of deduction is subject to the 2% "floor".  You can only deduct the expenses that exceed 2% of your AGI.

[Anonymous]

Yes.  You can deduct the expense on Schedule C if you qualify as a real estate professional and on Schedule A if you don't.

See:

https://ttlc.intuit.com/questions/3587619-do-i-qualify-as-a-real-estate-professional

https://turbotax.intuit.com/tax-tips/self-employment-taxes/tax-tips-for-real-estate-agents-and-broke...

"Licenses and Regulatory Fees" as unreimbursed employee expense on Schedule A:  https://www.irs.gov/publications/p529#en_US_2016_publink100026944

[Hal_Al]

Maybe, but probably not.

The general rule is: Educational expenses to improve your current job skills are deductible. But learning a new job is not. Getting a real estate license, almost always means a qualification for a new job. Just exactly how does having a real estate license help you do your CURRENT job? The courses in real estate may have been helpful, and therefore deductible. But it's unlikely that the license fee is deductible.

Once you have a license and use it on your job, the annual renewal fees will be deductible. But, the cost to obtain the initial license is not.

[AA2017]

Thank you . My position involves identifying, negotiating, closing new locations for company expansion which requires a real estate license (commercial) in AZ. The purpose was to save the company commission costs that an agent would normally receive and also have an internal person with company experience (employed 19+ years with this same employer).

In my case this requires a real estate License. Why would educational /Pre-licensing class expenses required to obtain the license not be deductible?

[Hal_Al]

What you describe is not deductible because it qualifies you for a new position. In your mind, you may think that was your job already. But the IRS thinks otherwise.
You actually have a better question to ask: if this is going to save  the company commission costs; why isn't your employer reimbursing you?

[AA2017]

According to the IRS: "To be deductible, your expenses must be for education that either maintains or improves your job skills, or is required by your employer or by law to keep your salary, status or job."

My education maintains & improves my job skills so can you explain how the expenses to obtain the license are still not deductible?

[Hal_Al]

By having a license, you are essentially able to "collect" commissions for real estate sales, something you weren't  able to do  before. Getting a license is almost always a "new" profession. Another common example: an accountant may be crunching numbers on his existing job, but becoming a CPA qualifies him to do more. Initial CPA and real estate licenses are almost never deductible and a guaranteed red flag at the IRS.

[AA2017]

Understood and thank you for the warning but that is not my case. The agreements/ contracts to obtain a location for the company require full disclosure of commissions which will prove I did not collect a commission.

In addition, I have no additional income/ commission to report outside my employer for other transactions because I didnt have any.