Most people hesitate to hire a property management company because they consider it an additional expense, but what they don’t realize is that property management costs are tax-deductible. Yes, this means that when tax time comes, you can “recoup” the costs you spent on your property management firm for the entire year! Not convinced? In this post, we’ve broken down a few of the deductions you may be able to claim when you hire a company to oversee your Florida rental:
How Property Management Company Can Reduce Your Taxes
Most rental providers are aware that certain expenses such as transportation are tax-deductible, however, not many maximize the deductions they can claim from the fees they pay a third party. When you partner with a company to run your rental or provide services related to rental management, all of the costs of their services can typically be subtracted from your taxes. However, you must maintain copies of the invoices from the company, as you may have to prove that you actually paid a certain amount.
Apart from the base pay your property manager collects (this is typically based on the rental rate), below are a few examples of the common expenses you can deduct from your taxes:
Maintenance and Repairs
One of the main roles of a property management firm is to routinely maintain and repair your property. This means servicing the HVAC system/s, conducting pest control, cleaning common areas (in commercial properties), gardening as each season rolls around, and so on. While some maintenance and repair tasks can be done on your own, it would be better to let a professional do it for you. Not only is it risky to maintain and repair parts of your property yourself, but you’ll be able to deduct the costs later on.
Most property management firms have an in-house maintenance team, while others partner with companies that can offer their services at cheaper rates. In any case, you can still cut the total amount your company bills you from your taxes.
Do note that not all repair costs can be subtracted from your taxes. You can only deduct necessary repairs. Furthermore, these repairs must not boost the property’s value, be considered a property improvement, or be for aesthetic purposes. For example, if the roof is leaking, your property management firm must only repair the part of the leak or identify its cause, not replace the entire roof. An expert company will know exactly which repairs you can deduct.
Property managers don’t just oversee your rental’s day-to-day operations – part of their job description is to advertise your property and fill your vacancies. In that way, you can maintain a consistent cash flow and be on track with your investment goals.
When you use a property management firm in Florida, they won’t simply list your property on the usual sites and the MLS. You’re paying them for their subscriptions to paid websites where your property will be rented out at a faster rate. These are platforms you otherwise wouldn’t have access to, or wouldn’t make sense to pay for unless you were running a rental business.
Companies also pay for their team to undergo training, allowing them to determine the ideal way to market a property to its target tenants. This invaluable skill lets them “match” your property with the correct tenants, and rent it out swiftly so it doesn’t sit vacant for too long.
The typical property management package comes with legal assistance, as part of your company’s duties is to deal with disputes (with tenants, contractors, etc.), negotiate rental contracts, and more. Fortunately, you can deduct the legal fees you pay to your property management company, which either has its own in-house team of lawyers or has a partnership with a law firm. This is good news, as legal fees tend to be incredibly expensive.
Note that a property management company’s legal fees can only be deducted if the tasks conducted are related to your rental. The management company can’t deal with legal matters that don’t concern your rental.
How Else Can a Property Management Company Help With Taxes?
Aside from tax deductions, here’s how a property management company can ease your stress and make tax season a lot smoother:
They’ll Maintain Your Books
Rental providers with no accounting background can benefit from using a management company, as most of them have an in-house team of accountants whose role is to manage the books. When tax time comes, you can count on their accountants to prepare all the paperwork, and determine which tax deductions you’re allowed to claim. In case you need to support your deductions to the IRS, you can easily find certain files as your accountant will have sorted them properly.
They’ll Help File Your Taxes
Completing various IRS forms can be confusing, as you’ll have to go through many financial reports, invoices, and more. You can delegate this responsibility to your property management company and reduce the risk of making calculation mistakes, which can get you in trouble with the IRS. You can count on your accountants to make sure your taxes are filed on time, and with accuracy.
They’ll Help You Understand Your Taxes
Not sure what you can deduct? Don’t worry – your property management company can identify what constitutes tax-deductible on your behalf. Property managers stay up-to-date on the law and are experts on the parts of the tax code that apply to rental properties. This means you no longer need to spend days studying the tax code, as they can guide you through it during tax time. Typically, all you’ll have to do is sign read, review, and sign the documents they’ve prepared. They’ll be by your side, ready to answer all of your questions.
Now that you know property management fees can be subtracted from your taxes, why not hire one now? Just look past the expense – in a way, you’ll be able to recover those expenses at the end of the tax year!
Choose Luxury Property Care to be your partner in rental property management. We’ll start our relationship with a walkthrough of our packages, allowing you to see what you’re going to get as well as what deductions you can claim. Call us at (561) 944 – 2992 or complete our contact form for more information today.