How to Deduct Property Management Fees in Jamaica, NY

As a property owner in Jamaica, NY, managing your rental property can be daunting. This is where property management companies come in, providing a range of services to help you manage your property. However, these services cost and property management fees can add up quickly. Fortunately, you may claim deductions on your taxes for these fees.

In this blog post, we will explore how to claim deductions for property management fees in Jamaica, NY, and discuss some relevant tax court cases.

Property management fees are charges paid to a property management company for overseeing and maintaining your rental property. Moreover, these fees typically range between 5% and 15% of monthly rent. And sometimes cover services, such as advertising, tenant screening, rent collection, maintenance, and repairs. In other instances, the property owner would pay a lower fee of say 10%. But then they have to pay for other items not directly offered by the property manager. Based on my experience, most smaller property managers sub-contracts work to licensed trade professionals.

Oh, by the way, my client Kelly hired, after searching for some time, a company whom she pays a whopping 20%. Why? She was happy with the quality of customer and technical support they provide. Sometimes, you have to “bite the bullet” to get what you need, so you can sleep well at night.

To claim deductions for property management fees in Jamaica, NY, you must meet specific requirements. That said, the property must be used for income-producing purposes, such as rental income. Additionally, the fees must be paid to a third-party property management company, not to a related party or individual.

On the other hand, did you know you could create your own “in-house” management company? Yes indeed. You can create or form a C-Corp or other entity solely for the purpose of managing your Jamaica NY real property. This is part of a larger strategy to save taxes, and can get quite complex. So, don’t try this at home. At least not until you consult with a qualified and experienced tax planner.

Eligible deduction expenses include fees paid to the property management company, advertising costs, administrative expenses, and costs for maintaining and repairing the property. It is important to keep accurate records of these expenses, including receipts and invoices, to support your deductions. This is so so important, and that’s why I will say it again: Jamaica NY real estate investors, please keep accurate and complete records, not just property management transactions, but ALL transactions.

In the case of Thompson v. Commissioner (T.C. Memo 2018-154), the taxpayer, a real estate investor, deducted property management fees as a rental expense. The IRS disputed the deduction, arguing that the fees were not ordinary and necessary expenses. However, the Tax Court ruled in favor of the taxpayer, stating that the property management fees were indeed ordinary and necessary expenses for the rental business.

In another case, Honeycutt v. Commissioner (T.C. Memo 2017-142), the taxpayer, a real estate investor, claimed deductions for property management fees related to his rental properties in Jamaica, NY. However, the IRS disallowed the deductions, arguing that the fees were not adequately documented. The Tax Court ruled in favor of the IRS, emphasizing the importance of keeping accurate records to support deductions.

Claiming deductions for property management fees can be a valuable tax strategy for property owners in Jamaica, NY. By understanding eligibility requirements and keeping accurate records, you can take advantage of these deductions and optimize your rental income / minimize your tax bill. Consequently, remember to consult with a tax professional or accountant to ensure you are taking advantage of all the deductions available to you and avoid potential audit issues. Or, even if audits come your way, if you plan appropriately, you will always WIN! By the way, somewhat off topic, you should know that I help clients beat the IRS and State. And, that’s even if they actually owe money. Watch this testimonial to learn about cases we’ve won for our clients: https://youtu.be/SFMt59zxccY

Managing a rental property in Jamaica, NY can be a complex and time-consuming task. Property management companies can provide valuable services to help you manage your property, but the fees can add up quickly. By understanding how to claim deductions for property management fees, you can reduce your tax liability and maximize your rental income. Remember to keep accurate records and consult with a tax professional or accountant to ensure you are taking advantage of all the deductions available to you.

Are you a real estate professional and need help with your tax and accounting? I am here for you! Learn more about me here: https://wscullycpa.com/about/. Please contact Wayne Scully by e-mail at [email protected] or by phone at 718.938.4601.

FREE OFFER:
Get a FREE! FREE! copy of Wayne’s book here: www.getmytaxbook.com.