April 10, 2019

Can Having a Property Management Company Save You Money at Tax Time?

There are numerous benefits to hiring a property management firm, such as the peace of mind that comes with knowing a professional will handle any situation that might arise.  But did you know that there are benefits  to hiring a property management company that you can realize on your tax returns? Read on for more information about the savings you might see when you bring a property management company on board. 

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Professional Services

If you pay someone for services related to your business, those payments are typically tax deductible, provided that they are typical and not overly expensive. Including a property management service.

If you haven’t hired a property management company before, let’s have a quick overview. You can typically select the level of service for which you hire a property management firm. They can only deal with rent collection, they can help with screening applicants, they can do absolutely everything. A truly full-service property management company would allow you to enter an agreement with them stating that they will hire people like leasing professionals, maintenance specialists, etc.  You won't have to spend your valuable time trying to find the best person for a myriad of jobs– you can depend on your management company's established relationships with a variety of vendors. 

Organization

All of these services are generally going to be a tax-deductible expense, even if you hire these individuals on your own. If you do so, keep in mind that you will need to maintain exceptional records to back up your tax filing. Once you have a handyman, an electrician, a roofer, a plumber…the files begin to stack up.

One of the significant benefits of hiring someone to manage your rental property is that they contract all of these people for you. With relation to your tax return or any potential audits that may arise as a result, these companies will also keep complete and detailed files for you. They will be able to back up the items you can deduct. Not only is this a tremendous timesaver, but it’s also an enormous relief around mid-April.

Tax Explanation

So, what can you deduct? It can be complicated! Have you seen the tax code? If you think War and Peace was long, the tax code will blow your mind. Property managers know the tax code. Well, not all of it. However, they usually know the portion that relates to rental properties exceptionally well and can be of assistance to owners who haven't figured it out yet.

Without getting too granular on the subject, the major takeaway here is that you don’t need to spend hours studying taxes. You don’t need to pay hundreds to thousands of dollars on accountants or attorneys to help explain your tax situation to you. A property management company has already done the reading and will give you easy to use documentation come tax time.

Take a Load From Your Mind

When you hire a property management company, they work for you. This is the best part of the deal. If you are working alone, you might spend hours searching for the right contractor for your job and still pay too much. Employing a property manager is hiring someone to find the right price for you. Without having to lift a finger, your property manager will find the best deals to maintain your property. It’s beneficial to their profits to do so, just as it is vital to keeping you as a client.

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So, this one doesn’t have a ton to do with tax benefits, except this: Keeping your overhead low keeps the IRS off of your back. This is always a good thing. Saving money is also always a good thing. Property managers often have volume discounts with contractors that will get you better prices for maintenance and repair than you could ever realize alone. Excessive costs are a red flag for the IRS, and you may not know what is excessive. The odds are good that your property manager has been there and had it quoted by several sources.

This is where we tie a bunch of loose ends into a tight little bow and tell you that you should think about hiring a property management firm to make your life as a rental investor easier. Usually. Instead, we want you to consider how you feel at some point between January 1 and April 15, whenever you file your taxes.

Do you walk confidently to the mailbox? Are you bulletproof? When you leave those documents for pickup, do you feel no worry or anxiety?
Exactly.

A wise and funny man said that there’s nothing certain in life but death and taxes. You are almost certainly paying a doctor to prevent the former. Who is protecting you from the latter?

The professionals at JMZ Management handle hundreds of properties in the Metro Detroit area— we'd love to add your properties to our roster! Click here to get more information. Also, be sure to download our free guide, "The Guide to Finding the Best Michigan Property Management Company."

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Topics: rental property management