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Are Property Management Fees and Expenses Tax Deductible?

Posted by sonrise on August 16, 2016
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Real estate is one of the best-paying investments. It offers several advantages including:

  • property appreciates in value over time along with rental income
  • It can be a good source of passive income because daily or hands-on property management is not consistently required*
  • Overhead expenses are low compared to returns
  • Housing is always in demand regardless of the state of the economy
  • It is an investment that can be inherited by beneficiaries who can keep earning income

If a property owner decides to hire a property management company they may wonder if property management fee and expenses are tax deductible.

Are Property Management Fees and Expenses Tax Deductible?

Managing returns in property management
When it comes to renting property there is more to it than collecting rent payments. The property needs to be advertised when it is vacant, tenants must be screened, rent needs to be collected, maintenance issues must be handled, etc.

Deductions on rental property
Some deductions may be taken at the full cost of the expense such as the costs incurred in maintaining a building like repainting siding and repairing broken windows.

Deductions for capital expenses, on the other hand, need to be depreciated. Capital expenses are incurred when improving a building by increasing its useful life or its value. Improvements may include installing a new roof, renovating a space or garage to create an extra bedroom and other refurbishments.

Administrative expenses can also be written off in full. These include costs of advertising an empty unit, legal fees charged for drawing up tenancy agreements, contracting a property management company and credit checks on prospective clients.
Renting part of a property
As a property owner, you can choose to rent some units and take up residence in one unit yourself. If this is the case, you will only be able to write off expenses arising from the property you are renting out. Should you put the property that you rent in the hands of a property management company that expense is fully deductible.
Renting property tax schedules
Schedule E

If you are simply renting out an apartment, building, room or other space and only provide services like collecting trash and payment of utilities then you would be required to file rental tax information on Schedule E.

On this Schedule, you need to report the income you make from renting the property, depreciation and the expenses you incur for the units. Owners file as many schedules as necessary to make reports of all the properties you have. The totals are then added up and the grand total is put on a single form. It is on this form that deductions on property management expenses are made.

Schedule C

Schedule C is for rental property owners who provide services for tenants such as a maid service, housekeeping, linen changing and others. To qualify to file under Schedule C, the convenience services that are provided must be significantly more than basic services like trash collection and cleaning and maintenance of the building. The expense of contracting a property management company to handle the provision of these services can be deducted under Schedule C.

Maximizing returns on rental property
While it provides passive income, rental property still requires management of tenants, payments and situations that may arise like repairs. A property owner can free up their time completely by hiring a professional property management company which is a tax-deductible expense.

Maximize your returns by finding out more about property management deductible expenses and tax returns.

Son-Rise Property Management is a full service property management company located in Bellingham, WA. Contact us today to see how we can help you find the perfect home to rent or manage your property.

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