Are property management fees tax deductible?
Searching for more information on whether property management fees are tax deductible?
This is a common question that many owners ask at some point. In most cases, the answer is yes property management fees are tax deductible.
Knowing that these significant expenses can be offset can bring a profound sense of relief. Still, there are specific conditions and guidelines that landlords need to follow to ensure they claim the deduction correctly.
What Are Property Management Fees?
Property management-fees are charges paid by a property owner to a management company or individual who handles tasks for them, like rent collection, maintenance, and property marketing. These tasks may include collecting rent, handling tenant inquiries, coordinating repairs, and ensuring compliance with local regulations. The fee for these services is typically a percentage of the rental income. However, some management companies charge a flat fee or offer a tiered pricing structure based on the level of service provided.
Deductibility
In 2024, the IRS allows specific property manager fees to be deducted. They must be directed at the operation and maintenance of a rental property and generally qualify as property-related expenses.
Key Considerations
While property management-fees are deductible, it’s essential to understand the specifics of how to claim this deduction:
- Rental Property Income: The property management fees can only be deducted if the property is used as a rental. If the property is used for personal purposes or left vacant, the costs incurred during that period may not be deductible. The IRS requires that the expenses be incurred during the period the property is available for rent.
- Reporting the Deduction: Property management -ees are reported on Schedule E (Form 1040) to report income and loss from rental real estate. The fees are listed under the “Other” expenses category on Schedule E. Landlords should keep accurate records and receipts of all fees paid to management companies as proof in case of an audit.
- Commingling of Services: If a property management company provides one or more additional services that are not related to managing the property—such as personal financial planning or investment advice—those portions of the fees may not be deductible. Only the costs directly associated with managing the rental property qualify for the deduction.
- Prepaid Fees: If a property owner pays property-management-fees in advance for future services, those fees may need to be deducted over the period the services are provided rather than all at once. For example, if a landlord pays a management company for a full year of service in advance, the deduction should be spread out over the year.
- State and Local Taxes: While the IRS sets the rules for federal tax deductions, state and local tax laws may have different guidelines.
Contact Us
In the 2020s, property management fees are always a 100% essential part of owning and operating rental real estate, and the good news for landlords is that these fees are generally tax deductible.
To learn more about our property management services, contact us today by calling (503) 646-9664 or clicking here to connect with us online.
