Property management is a big job. Between finding tenants, collecting rent, and keeping up with property repairs, it’s no wonder that many people choose to hire a professional property manager. But did you know that some of the costs associated with property management are tax deductible? Here’s what you need to know.
Can Management Fees Be Deducted From Taxes?
Rental property owners are considered business owners. So, any rental income you receive from your tenants is taxable, including security deposits, as these are rental payment advancements. Certain rental business expenses paid throughout the year can be deducted from your tax return to lower your tax liability.
Regarding tax deductions, there are a few things to keep in mind.
- Management fees can only be deducted if they are considered business expenses.
- Operating expenses are related to the management and maintenance of property used for business purposes. They cannot be from your personal property.
- The expenses must be considered necessary and reasonable to be deductible. So, they need to be necessary for the course of renting out your property and reasonably justified.
- Property management fees can only be deducted if paid to a qualifying third party. This includes real estate agents and other professionals who provide services related to property management.
If you’re unsure whether your management fees meet these criteria, it’s best to consult with a tax professional.
What Property Expenses are Deductible?
If you own a residential property or multiple properties, you can take specific property expense deductions. Property expenses can relate to utilities, real estate taxes, and maintenance. One area of deductible property expenses you may not think of is depreciation deductions.
What is depreciation?
Real estate depreciation refers to the wear and tear of a your rental real estate over time. It is an important deduction for rental property owners because it can shelter a good portion of your rental income from yearly taxes. The current depreciation method is the straight-line method which is taken over a specified number of years.
What Can You Write Off if You Own a Rental Property?
If you own a rental property, there are several expenses that you can write off on your taxes. By taking advantage of these potential deductible expenses, you can minimize your tax liability and maximize your profits.
Any money spent on advertising your rental property, such as online listings or print ads, is tax deductible.
You can deduct the costs of any administrative expenses related to your rental property, such as bookkeeping fees or accounting services.
You can deduct the cost of insurance for your commercial or residential rental property, including rental property insurance, liability insurance, and property insurance.
Maintenance and Repairs
All money spent on maintaining and repairing your rental properties is tax deductible. This includes everything from painting and repairs to landscaping and pest control.
If you have a mortgage on your rental property, you can deduct the interest you pay on your loan.
You can deduct any property taxes you pay on your rental property.
You can deduct the cost of utilities for your rental property, including electricity, gas, water, and trash service.
As a rental property owner, any legal fees you incur relating to your rental property can be used as tax deductions.
How Do I Avoid Paying Tax on Rental Income?
As a landlord, you are responsible for paying tax on any rental income. However, there are a few ways to reduce the taxes you owe on your rental income.
- Offset your rental income against your mortgage interest payments.
- Claim expenses for repairs and maintenance, advertising, administrative fees, etc.
- Ensure you claim depreciation on your property.
It is important to remember that avoiding or evading tax is illegal and can result in severe penalties. So it is always best to seek professional advice before taking action.
Rental Property Deductions Checklist
It’s important to know the type of deductions you can take as a landlord. Several expenses can be written off on your taxes, from repairs to advertising. To make sure you don’t miss any deductions, here’s a checklist to ensure your deductions qualify and you can legally take them:
- Keep Your Receipts: First and foremost, you must have documentation and validation that your expenses can be deducted. You will want to ensure that receipts or a written format of your costs are categorized and totaled up for the year. Take time throughout the year to keep accurate records of any expenses related to your property.
- Ensure Your Deductions are Business Related: Any deductions you take must be business related. This means the expenses must be necessary and ordinary for running your rental property.
- Make a List of Potential Deductions: Before tax season comes around, list all potential deductions you could take. This will help ensure you don’t forget anything come tax time.
- Ask a Tax Professional: Always ask a tax professional when in doubt. They will be able to help you understand what deductions you can and cannot take.
- Check out the IRS Website: If you question what expenses you can and cannot take, it’s always a good idea to go straight to professionals. The IRS has tips on deductions you can take if you are a rental property owner.
Contact a Professional Property Management Company
The right property manager can help ensure you are taking all the proper deductions. Hiring the right professional property management company is essential as they will be the face and voice your tenants will speak to. They will also be able to provide recordkeeping and receipts that you have incurred throughout the year. It’s essential to have a professional and organized property management team to back you up so you can focus on other things.
Contact our Suncoast Leasing and Management team today. You will immediately notice how we set ourselves apart from other property managers. We want to ensure your investment is properly managed so you can make the most of it. Give our team a call today and see how we can help your rental business flourish.