Property managers are engaged in a service business, which means they’re entitled to the full array of business-related tax deductions. Almost everything you buy for your business is tax deductible sooner or later, so long as it is ordinary and necessary and the cost is not unreasonable.
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Property management tax deductions can really add up. For example, if you buy a $2,000 computer and use it 100% for your business, you could deduct the full cost from your taxes. If you are in the 28% federal income tax bracket, that would save you $560 in income tax. In effect, you’d be getting a 28% discount on the computer.
The catch is you must really use the computer or other item you buy for your business. You can’t deduct personal expenses.
So what else can property managers deduct from their taxes? We’ve rounded up ten of the most common property management tax deductions:
1. Car Deductions
The cost of all driving you do for your property management business, with the important exception of commuting to and from your home to work, is tax deductible.
There are two ways to deduct your car expenses, the actual expense method or the standard mileage rate.
Actual Expense Method
The actual expense method requires you to keep track of all your car expenses to figure your annual deduction.
You also get an annual deduction for depreciation. For 2022, this was as much as $19,200 (the actual amount depends on the cost of the car and the amount of business use). The maximum depreciation amount will be inflation adjusted for 2023.
Standard Mileage Rate
If you’d rather not keep track of how much you spend for gas, oil, repairs, car washes, and so forth, you can use the standard mileage rate. With this method, you only need to keep track of how many miles you drive for business, not how much you spend on your car.
Ordinarily, there is one standard mileage rate for the entire year. However, due to high inflation, there were two rates for 2022. The rate for Jan. 1, 2022 through June 30, 2022 is 58.5 cents per mile. The rate for July 1, 2022 through Dec. 31, 2022 is 62.5 cents per mile.
The rate for all of 2023 will likely be around 62.5 cents per mile.
Note: If you want to use the standard mileage rate, you must use it the first year you use your car for business. You can later switch to the actual expense method if you want.
2. Deductions for Office Expenses
The amounts you spend on your business office are deductible business expenses. For example, you can deduct the rent and utilities you spend for an outside office or other workspace.
If you work at home, you may be able to deduct the cost of your home office. This deduction is particularly valuable if you are a renter because it enables you to deduct a portion of your monthly rent, a sizable expense that is ordinarily not deductible.
For the ins and outs on taking the home office deduction, see my book Home Business Tax Deductions.
3. Deductions for Business Travel and Meals
You can also deduct your expenses when you travel for business. Those expenses include airfare or other transportation costs and hotel or other lodging expenses.
Ordinarily, you can only deduct 50% of the cost of meals when you travel for business. However, for 2022, you can deduct 100% of the cost of meals purchased from restaurants.
4. Deductions for Long-Term Assets
Whenever you buy property for your business, you can deduct the cost. Special rules apply, however, when you purchase property that lasts more than one year, such as cars, real property, computers, cell phones, and office furniture.
You may have to deduct the cost of such property over several years using a process called depreciation. However, you have the option of deducting all or most of the cost of most types of long-term assets—other than real property—in a single year. That allows you to get a big deduction all at once rather than spreading it out over several years. There are a few ways to do that:
- Bonus depreciation allows you to deduct 100% of the cost of most personal property placed in service in your business during 2022 (80% for 2023).
- Under Internal Revenue Code Section 179 you can currently deduct up to $1,080,000 of personal business property purchased in 2022 (the 2023 amount will be adjusted for inflation, as well.
- A provision of the tax law called the “de minimis safe harbor,” allows you to deduct in a single year any tangible personal property that costs $2,500 or less, as stated on the invoice.
5. Pass-Through Deduction
The vast majority of property managers have pass-through businesses—that is, they are sole proprietors, partners in partnerships, limited liability company (LLC) owners, or S corporation shareholders. The net income from the property management business is passed through the business and taxed on the manager’s individual tax return at his or her individual tax rates.
Starting in 2018, Congress established a new deduction for pass-through business owners, including property managers ( IRC Section 199A). You can qualify to deduct from your income taxes up to 20% of your net business income, on top of all your other business deductions.
If this deduction applies, you are effectively taxed on only 80% of business income. This is a personal deduction you can take on your return whether or not you itemize. This deduction is scheduled to end on Jan. 1, 2026 and is not available to employees.
6. Deductions on Rent for Equipment and Tools
Many businesspeople don’t buy expensive equipment or vehicles—they rent them instead. The rent you pay for equipment you use for your business is fully deductible as a business expense.
7. Deductions on Materials and Supplies
Materials and supplies are business items that you use up in less than one year. They include everything from paperclips to postage stamps. Under IRS regulations, any personal property you buy for your business that costs less than $200 is deductible as materials and supplies.
8. Deductions on Legal and Professional Services
You can deduct fees that you pay to attorneys, accountants, consultants, and other professionals if the fees are paid for work related to your business.
9. Insurance Deductions
Insurance you buy just for your business is deductible—for example, business liability insurance or insurance for business property. If you have a home office, you can deduct a portion of your homeowners insurance. Self-employed people are also allowed to deduct 100% of their health insurance premiums from their income taxes.
10. Deductions on Employees and Independent Contractors
If you hire one or more employees to help you with your property management business, your payroll and other costs, such as health insurance and other benefits, are fully deductible. When you hire an independent contractor to perform services for your business, the cost is deductible, as well. For example, you can deduct the cost of hiring a bookkeeper to do your books or a custodian to clean your offices.
Tax deductions can help you save money year over year. But one of the best ways to keep your business in the black is to set up solid accounting practices and remain on the right side of tax law.
If you’re looking for more tax help, check out our 2022 Tax Guide.
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