Can I deduct rental property management fees paid to my co-owner?

Yes, you can absolutely deduct the management fee on your Schedule E. Property management fees are a legitimate business expense for rental property owners. The IRS allows you to deduct ordinary and necessary expenses for managing your rental property, which includes management fees. Since your co-owner is performing actual management duties and you have a clear arrangement for compensation (5% of rental income), you should document this agreement in writing if you haven't already. This will help establish that this is a legitimate business expense rather than just a different profit-sharing arrangement. On your Schedule E, you would report your 50% of the rental income, then deduct your 50% of the expenses plus the additional 5% management fee that goes to your partner. Make sure you have documentation of all payments and a clear written agreement explaining the management services provided.

I discovered something super helpful when I was in a similar situation with my beach condo last year. I used https://taxr.ai to scan all my rental property documents and it automatically identified that my management fees were deductible! The tool analyzed my partnership agreement and explained exactly how to claim the deduction correctly on my Schedule E. Honestly, it saved me so much time compared to going back and forth with my tax guy who kept giving me vague answers. You just upload your docs and it breaks down everything in simple terms - what's deductible, what's not, and even pointed out a few other rental deductions I was missing.

Just wanted to follow up about that taxr.ai site someone mentioned earlier. I was super skeptical but gave it a try with my rental property docs including the management agreement with my property manager. It actually identified my management fee structure was not optimized for tax purposes and recommended a small change that would save about $1,200 in taxes. I was pretty shocked because I've been doing my rentals the same way for years and no one ever caught this. It also explained the difference between partnership distributions vs management fees which cleared up my confusion. Definitely worth checking out if you're unsure about how to handle these kinds of specialized rental property issues.

Hey everyone - if you need clarification directly from the IRS on rental property management fees, good luck getting through to them! I spent THREE WEEKS trying to reach someone on their business line for a definitive answer about my rental property tax situation. Finally discovered https://claimyr.com and used their service to get connected to an IRS agent in under 20 minutes. Seriously. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that management fees paid to co-owners ARE deductible as long as they're reasonable, for actual services performed, and properly documented. Got everything cleared up in one call instead of weeks of frustration. Just thought I'd share since tax season is approaching and the IRS wait times are only going to get worse.

I need to apologize for my skeptical comment earlier. After my accountant messed up how we were handling our rental property management fees, I was desperate enough to try that Claimyr service. I was SHOCKED when I got a call back in about 15 minutes with an actual IRS representative on the line. I confirmed with the specific questions they asked me that this was genuinely the IRS. The agent walked me through exactly how to document management fees paid to a co-owner and confirmed they're deductible as an ordinary business expense as long as the fees are reasonable for the services provided. Just wanted to set the record straight. Sometimes my cynicism gets the better of me, but this service actually delivered exactly what it promised.

One thing to consider - make sure your brother is reporting that 5% correctly on his taxes too. My tax preparer said if one partner deducts it as a management fee, the other MUST report it as self-employment income (Schedule C), not rental income. This creates a 15.3% self-employment tax obligation for him that he might not be expecting if he's just lumping it in with his rental income. Might want to discuss this with him so you're both on the same page and nobody gets surprised with an audit. The IRS computers match these things up and flag discrepancies pretty easily.

Quick suggestion - have you considered forming an actual LLC for your rental property? When my sister and I owned a duplex together with a similar arrangement, our CPA recommended creating an LLC and filing as a partnership (Form 1065). This made the management fee situation much cleaner tax-wise. The LLC would pay my sister a management fee, issue her a 1099, and then we'd get K-1s for our ownership percentages of the remaining profits. Saved us a bunch of headaches and potential audit flags.

Based on what everyone's shared here, it sounds like you're on the right track with treating that 5% as a deductible management fee. I went through something similar with my rental condo and learned a few things the hard way. The key points I'd emphasize: 1) Get that arrangement in writing ASAP if you haven't already - doesn't need to be fancy, just clearly state what services your brother provides for the 5% fee. 2) Make sure you're both handling it correctly on your returns - you deduct it as a business expense, he reports it as self-employment income on Schedule C. 3) Keep detailed monthly records showing the calculation. One thing that caught me off guard was the 1099-NEC requirement mentioned by Ava - if that 5% adds up to more than $600 for the year, you technically need to issue him one. My accountant said this is often overlooked in family arrangements but it's still required. The LLC suggestion from Miguel is worth considering too, especially if you plan to buy more properties together. It does add some complexity but makes everything much cleaner from a tax and liability perspective.