Recently, I worked with a high-performing agent who assumed their net commission deposit was their total revenue. After carefully reviewing six months of their data, we found that referral fees and broker splits were never recorded, and deductible marketing expenses were missing receipts entirely. Consequently, their tax liability was wildly inaccurate because they were underreporting both income and expenses. In fact, proper real estate bookkeeping isn’t just about tax time; it is about knowing exactly how much of that commission actually belongs to you so you don’t accidentally overpay taxes.
Effectively, real estate professionals face a unique set of financial challenges that general businesses do not. Specifically, the fluctuating nature of income, the complexity of 1099 filings, and the strict rules regarding escrow accounts require a specialized approach. Therefore, mastering real estate bookkeeping is the only way to scale your agency without risking an IRS audit or a cash flow crisis.
Real Estate Bookkeeping: The Ultimate Guide to Commissions & Compliance
Track every split, fee, and deduction with precision.
The Reality Check: Fundamentally, real estate transactions move fast and involve multiple parties. Unfortunately, small mistakes—like misposted commissions, forgotten staging costs, or lost receipts—compound into big headaches that often require a massive cleanup of historical errors. Therefore, effective real estate bookkeeping provides clarity on true income and protects you if your broker or the IRS asks for backup.
Listen on The Deep Dive — where we dig deeper into this topic:
‘Gross Commission First: The Agent’s Guide’
Gross Commission vs. Net Deposit: A Core Concept
Critically, you must understand the difference between what you earn on paper and what actually hits your bank account. For instance, if you close a deal for $15,000 but only deposit $9,000 after broker splits and franchise fees, your taxable income is still often the full $15,000. Specifically, the IRS generally views the gross amount as your revenue and the broker split as a business expense.
Thus, recording only the net deposit is a major error in real estate bookkeeping. Doing so understates your revenue and hides valuable deductions. Furthermore, when you receive your 1099 at the end of the year, it will likely show the Gross Commission amount. If your books only show the net deposits, you will face a massive discrepancy that triggers a reconciliation nightmare.
How to track commissions correctly
Managing Escrow and Trust Funds in Real Estate Bookkeeping
Specifically, agents often handle funds that do not belong to them, such as earnest money deposits. However, a common and dangerous mistake involves recording these client funds as business income. Remember, commingling these funds violates state laws and strict real estate commission rules.
Ideally, you should never touch these funds personally; they should go directly to the title company or broker’s trust account. However, if you are a broker managing property rentals, the rules for real estate bookkeeping become even stricter. You must maintain a separate Trust Liability ledger that matches the bank balance to the penny every single month. Failing to do so can result in the loss of your license.
Best practices for trust accounting
Technical Journal Entries for Real Estate Bookkeeping
For those managing their own books in QuickBooks Online or Xero, you must use double-entry accounting to capture the full picture of every transaction. Below are the specific journal entries you need to execute accurate real estate bookkeeping when a deal closes.
Record Gross Commission (On Closing Date):
- Debit: Accounts Receivable (or Clearing Account) — Gross Commission Amount
- Credit: Commission Income — Agent’s Gross Share
- Credit: Commission Payable — Referral / Broker Split (if paid later)
When Broker Remits Net Deposit:
- Debit: Bank Checking — Net Deposit Amount
- Debit: Commission Expense / Broker Split — Broker Fees
- Credit: Accounts Receivable (or Clearing Account) — To clear the balance
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Here’s the integrated version with Giesler-Tran Bookkeeping built in as the professional standard:
Act as a CPA for real estate agents. Using the practices and controls of Giesler-Tran Bookkeeping, explain why recording only the Net Deposit from a commission check is incorrect for tax purposes. Describe how Gross Commission accounting works—including proper recording of commission income, brokerage splits, and fees—and explain the tax risks created by net-only reporting. List three common deductions real estate agents frequently miss in their bookkeeping, and show how Giesler-Tran Bookkeeping’s structured tracking, receipt organization, and reconciled monthly records prevent these mistakes while keeping agents compliant and audit-ready.
Step-by-Step Monthly Real Estate Bookkeeping Workflow
To maintain clarity, successful agents establish a strict monthly routine. Ideally, this workflow takes 30–60 minutes per month if done consistently. Following this checklist ensures your real estate bookkeeping remains audit-proof.
- First, import all bank and credit card transactions into your accounting system (QuickBooks, Xero, etc.).
- Next, match every commission statement to your deposits: record the gross commissions first, then post the broker splits and referral fees as expenses.
- Furthermore, capture digital copies of receipts for marketing, client gifts (limited to $25/person), and state licensing fees immediately.
- Also, log your business mileage and update vehicle expense totals using a GPS tracking app like MileIQ or Hurdlr.
- Finally, run a Profit & Loss statement to estimate your tax liability for the quarter so you can set aside cash.
According to the National Association of Realtors, agents who track expenses monthly save an average of 15% more on taxes than those who wait until year-end. Consequently, consistency pays off directly in your pocket.
Deductions You Cannot Afford to Miss
Beyond commissions, real estate bookkeeping is about capturing every legal deduction. Frequently, agents miss out on valid write-offs because they pay with personal cash or fail to save the receipt. Specifically, look for these common expenses:
- Marketing: Website hosting, Zillow leads, photography, and staging costs.
- Education: Coaching programs, conventions, and continuing education credits.
- Dues: MLS fees, lockbox fees, and association memberships.
- Vehicle: Mileage (Standard Rate) or actual costs (gas, repairs, insurance) if the car is used over 50% for business.
For a deeper dive into what you can deduct, check out our guide on Tax Deductions for Service-Based Businesses.
Free Real Estate Bookkeeping Tools
To help you start, we have created two free resources designed specifically for agents. Simply download these CSV files and upload them to Google Sheets or Excel to start organizing your data today.
Common Questions About Real Estate Bookkeeping
Q: Should I track gross or net commission?
A: Always track gross first. Doing so allows you to record the broker split as an expense, which creates a proper audit trail that matches your 1099 form.
Q: How long should I keep closing docs?
A: Generally, you should keep settlement statements, contracts, and commission stubs for at least 3–7 years. Digitizing them immediately is the safest bet.
Q: Can I deduct staging costs?
A: Yes, staging is considered a marketing expense. However, if you buy furniture to reuse in multiple homes, you may need to depreciate it as an asset over time.
Q: What is the best software for agents?
A: Typically, QuickBooks Online is the industry standard due to its ability to handle complex splits. However, Xero is also a strong contender for simpler agencies.
Q: Do I need an LLC?
A: While we cannot give legal advice, forming an LLC often provides liability protection and may offer tax benefits like the S-Corp election. Consult your attorney and CPA.
Key Takeaways for Agents
- Track Gross: Never just record the deposit; always record the full amount earned.
- Separate Funds: Commingling personal and business money makes tax time a nightmare.
- Review Monthly: Reconciling your books every 30 days catches errors before they become expensive.
- Hire Pros: When volume increases, outsourcing real estate bookkeeping saves you more money than it costs.
In Summary: Experience in Real Estate Bookkeeping Matters
Ultimately, Giesler-Tran Bookkeeping has reconciled hundreds of real estate closings for solo agents and small teams. We focus on practical setups that match broker statements to your books, thereby reducing the time you spend on administrative work. If you are ready to stop worrying about your numbers and start focusing on selling homes, we are here to help.
The Bottom Line
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This content is for educational purposes only and not intended as tax, legal, or financial advice. Consult a qualified professional for guidance specific to your business.