Self management vs property management company (apartment complex, tenants, rental property, fees)
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Birdy told me that, if you have a rental, and do not use management company, you have a higher tax deduction rate. reason being you are considered dedicating 100% of your time to the property managing vs. 70% of the time done by management company.
Any thoughts on this?
Please, this is not about "why to even have property management". I have no problem with that and they come handy.
If you are involved in the major decisions, it is no different. If it is hands (and mind) off, it is a passive investment and you cannot take a tax loss if you lose money.
I guess, question wa snot understood.
Birdy said that, as he is self managing his rental, he is getting better tax deduction because he is dedicating all of his time to property management. hence, he gets higher tax deduction. Vs property management, then they consider dedicating 75% of time to management.
I don't buy it. I have PM company and I deduct their fees plus whatever else expense was incurred, property wise, via PM company. If birdy is self managing, he has nothing to write off management wise, only the actual expense related to property maintenance etc.
...he (says that he) gets higher tax deduction... they consider dedicating 75% of time to management.
I don't buy it.
Neither will anyone else who has ever completed (or read) a Sch E.
With an LLC he might be taking some draw that the RE entity reports as an expense...
but that will still show up as personal income AND be subject to some SE taxes too.
On the whole... he isn't telling you the whole story ...and/or he doesn't understand it all himself.
I think what he's referring to is that he "saves more" by not using PM company vs using them and writing off that expense. This does make sense.
That's in case he has his operation running super smooth and without any hiccups.
I think what he's referring to is that he "saves more" by not using PM company vs using them and writing off that expense. This does make sense.
That's in case he has his operation running super smooth and without any hiccups.
I have owned a few Residential Rentals. A couple times I have used a Property Manager to handle that for me. Each time when I have used someone else to manage my property, my expenses were higher, and I lost the ability to use the Sched E losses against my salary income taxes.
My experience has shown to me that by managing property myself, I have had fewer expenses, greater profits and I have paid less income taxes.
If you aren't a real estate professional, you can write off up to $25,000 of your rental property losses, called passive activity losses by the IRS, against other income. To qualify for this write-off, you need to be actively involved in running your rental properties, although you can have a third-party manager helping you. You also need to have an Adjusted Gross Income that is $100,000 or less. Your ability to claim the passive activity loss deduction starts going down by $1 for every $2 of income that you have over the $100,000 threshold. If your AGI is $150,000 or more, you won't be able to claim any losses.
During my Active Duty US Navy career, we moved around a lot. At each location, we owned an apartment complex. We have been told, by our accountants in each of those states, that by owning and operating rentals that made us compliant with the 'real estate professional' caveat.
But [as I recall] we had to be doing the work. If we had used a Property Management company to dealing with tenants, we would have lost that functionality.
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