How To Simplify Property Management Tax Deductions For Rental Homes

If you own a rental home in the US, this source of income is taxed like a business, with expenses related to managing the home considered tax deductible. Whether you DIY, hire a property manager, or work with Belong, fees such as tenant placement and maintenance will be deductible. Of course, tax matters are rarely black and white, so we dig a little further to clarify “are property management fees tax deductible?”

Are property management fees tax deductible? What about Belong’s fees?

In short, yes, property management fees for a rental property are tax-deductible. A property you don't use for yourself or family is seen as an investment or business, so the cost of managing the property is tax deductible.

This also means you can claim fees from Belong. Although Belong is not a property management company, Belong takes on all of the responsibility of looking after your home and residents, so you can include fees and maintenance from our professional tradespeople as a deduction in your tax return. 

The tax benefits of hiring Belong vs self-management

You may have heard that there are tax benefits to taking a DIY approach and managing a rental property yourself. This is true, if you are self-managing the home, you may qualify as having ‘materially participated’ as a real estate professional. This allows your rental property involvement to receive non-passive tax treatment. Non-passive income means you can use any losses to offset other types of income, and you won't be subject to the 3.8% tax that applies to net investment income.

But to benefit from this approach, you need to be meticulous about bookkeeping and accounting. You will need to keep an accurate record of every penny spent on supplies and contractors maximize deductions at tax time. 

You also need to keep records to show that you have spent 500 hours or more managing your property. This route isn’t for landlords looking for passive income opportunities. 

Don’t have a spare 500 hours or more a year? No surprises there! Outsourcing the day-to-day to a professional is without doubt the simpler option for managing a rental home. But if you take the self-management route and need someone to help with your property, be aware that you could accidentally become an employer. If you hire an individual to help you out, you will need to consider legal and tax implications such as payroll. 

By working with Belong, both your costs and deductions are straightforward. When tax time comes around, your income and expenses will be simple to calculate because you always know exactly where you stand. With guaranteed rent in place, you will know precisely what your rental income looks like (regardless of when tenants pay). And you won’t find yourself getting tripped up by a string of unexpected expenses. 

When it comes to maintenance and repairs, Belong sends out vetted partners from a trusted network of over 10,000 professionals. We'll connect you in an instant to someone who can take care of necessary work and you can manage it all (including the cost) right from the Belong app.

Of course, to find out what best suits your financial situation and real estate investment, you should discuss this with a qualified accountant (their fees, like Belong, will also be tax deductible!).

Active participation vs passive activity

If your rental property is a sideline investment that you don’t want to lift a finger on, it’s considered a ‘passive activity’ by the IRS. In this case, you can still claim tax deductions but any losses will carry forward until you generate passive income or sell the investment.

There is a middle ground between passive income and becoming a real estate professional is known as “active participation”. The IRS takes into account major decisions about your investment, such as approving new residents and even the work that goes into appointing a property management company. If you actively participate in these decisions, you may be able to deduct some (up to $25,000) of your passive losses, without doing it all yourself. There are income thresholds and caps on deductions here so you will need to speak to an accountant to determine if you qualify for this. 

Simplifying tax time for property owners

Income and expenses from a rental property can get complicated if you own more than one property, or decide to manage things yourself. By partnering with Belong, everything gets easier.

Belong is simplifying the rental experience and helping more homeowners reach their financial goals through real estate. Visit our homeowner's page to find out more about how our services are helping people to ditch property management in Seattle, San Francisco, San Diego, Los Angeles, Tampa, Orlando, Jacksonville, Miami and many more.