Tax Advantages of Using A Property Management Company

Owning a property that generates a steady income is an exciting idea until you run it by yourself. Every property owner who has tried to manage the properties while juggling another occupation knows how difficult it is. You need to consider plenty of things, such as rent payments, routine inspections, and general administrative work. This piece will highlight one of the less understood benefits of using a property management company—paying fewer taxes.

Taxes graphic
Photo by Karolina Grabowska

If you want to have a successful real estate investing outcome, hiring a property management company might be the answer. It is a common misconception that all a property manager does is to collect rents. 

But many property owners didn’t realize that using a management company comes with several benefits, including tax advantages. We’re highlighting some of these tax advantages below. 

Maximize Your Property Tax Deductions

As a property owner, there is an extensive list of deductions you can take, and maximizing them can boost your tax savings. You can deduct the expenses you paid for the repairs. You can also deduct for using the property you for business activities. But only a few property owners realized that property management expenses are also deductible. 

Property management generally involves the managing of property that is owned by another entity. It means hiring a property manager or company to oversee your rental or commercial property. Since their services are tax-deductible, you will most likely reduce your tax bill. 

The following are the potential deductions you can take advantage of when using a management company. 

Maintenance and Repairs Costs

The costs of maintenance and repairs to your rental property are fully deductible in the same year they occurred, given that they don’t add value to the property. It can be fixing gutters, repainting, or plastering. You can surely do this on your own, but you can maximize these repair deductions when you use a property management company. 

Most property management companies have an in-house maintenance team who’ll handle repairs in your property at reasonable rates. Since they have to do routine inspections, they can detect maintenance issues and address them as soon as possible. Moreover, a management company knows which expenses constitute a tax-deductible repair. 

Advertising Expenses

Part of the services of a property management company is to market your property for rent. Although they can use free resources like signs or free listing websites, it may prolong the vacancies and delay your profit. 

Thus, they would have to spend advertising dollars promoting your property through mediums, such as paid rental listing websites or print publications. But the good news is you can write off these advertising expenses from your taxable income. 

Property Manager’s Rent

As a property owner, you can take up one unit in your rental property for yourself. You can then include this as one of your rental property expenses and deduct it from your taxable income. The same applies when you put the unit you rent out in the custody of a property management company or let a property manager stay on it. Either way, it’s fully deductible. 

Legal and Professional Fees 

Legal and professional fees that are essential and directly associated with running your rental property are deductible. Generally, you can write off the fees you pay to a property management company as operating expenses. But understand they must be for tasks related to your rental activity. 

Note that a property management company offers wide-ranging services besides the items mentioned above. Since you would have to pay for each service, you can add up more tax-deductible costs related to your rental property management. By using a management company, you’re generating more income while saving more on your taxes. 

Organize Tax-Related Documents

A property management company is responsible for handling all the paperwork between you and your tenants. Because their organizational skills are outstanding, they will have all the necessary documents ready during the tax season. It’s worth pointing out that organizing tax-related documents as you acquire them is vital so you can plan your taxes well. 

Below are additional advantages on your taxes once you have a property management company that organizes tax-related documents in your rental property.

Ensure Tax Efficiency and Accuracy

Running your property and going over various forms, receipts, and financial reports from banks can be frustrating. Because of that, it might be tempting to guess or estimate a figure when doing your taxes. 

Doing so could get you in trouble with the Internal Service Revenue (IRS) and cost you money. But when you use a property management company, you can avoid frustrations and better ensure efficiency and accuracy when filing your taxes. 

Seek Maximum Deductions

If you don’t have all the essential documents when filing your taxes, you’re most likely to overlook several deductions. Part of a property management company’s job is to keep all these documents. Then everything will be available for you to seek the maximum deductions on your taxes. 

Improve Financial Strategy

When a property management company organizes your tax-related documents, you have better chances to align your tax information with your overall financial strategy. With that, you can improve financial goals that are tax-advantaged, such as saving for retirement or building up a college fund. 

However, if you want to gain more control over your property tax costs, consulting with tax professionals like the JM Tax property tax specialists would also be a great addition. They have strategies that would help you save more money on your property taxes. 

Important Considerations

Using a property management company has great advantages not only in your taxes but also in other aspects. But of course, there are important considerations that you need to be mindful of so you can enormously benefit from it. 

Before you consider getting their services, it would be best to know at what point you should hire one. Because despite its tax advantages, relying on a property management company is not for everyone. For one thing, it might be worth considering using a management company if you have lots of rental properties and you don’t live near the area. 

Moreover, not all property management companies are credible. They should have enough experience in the business and a good reputation. Make sure that they are authorized to operate, and they offer multiple services related to your business. 

Takeaway

It is essential to secure your real estate investments, and one way to do this is by choosing a reliable property management company that’ll help you manage them. But while it’s tempting to rush on getting one due to its tax advantages, you must take your time so you won’t have any regret in the end.