Tax on property management services?

Question

Andrew S. · Answer

Not sure what taxes he wants to be compensated for here. Sounds like he wants you to cover his income tax? That's not done "normally", but if you feel that is appropriate and agree to it, then there is nothing wrong with it. $100 per property could be a good deal or bad deal - typically PMs take a percentage of rent, so if these are very high rent properties, then $100 is cheap. If they are $500/month properties, then its expensive.

Have you verified that that Texas law allows him to PM? Most states require PMs to have a real estate license, so if that's the case in Texas, then make sure he has that license.

Have you verified that that Texas law allows him to PM?  Most states require PMs to have a real estate license, so if that's the case in Texas, then make sure he has that license.

Andrew S. · Answer

Ok, I see - he is talking about a state and/or local service tax ("sales tax for services").  In my view, he should include that in whatever price he agrees to (i.e. in the $100 per property), but in any event, those types of taxes are usually in the single digits, NOT 25-30% as he seems to ask.  Although I'm not in Texas, my understanding is that the state portion of sales/service tax is 6.25% and then some municipalities slap another percent or two on top of that.

Nathan Mauzy · Answer

Good advice. I will need to put something into writing on exactly what is covered for the monthly fee. In our verbal agreement, there are no charges for repair trips and the labor and basic repairs are included. If he cannot handle himself like a/c repair then he contacts the local service companies many of which he deals with in his normal handyman job.

His question to me on taxes was not to cover income taxes it was for a service tax that he charges normally on his other business of pool cleaning.

Andrew S. · Answer

Sounds like he is more of an emergency contact than a PM then.  If all he does is answer the phone for you then I actually think $300 is way too much, so make sure you know what you are getting from him.  I.e. is he going to charge you extra for his repair trips or are those included (at least the labor and basic supplies)?  What if it is something he can't handle himself? etc

Nathan Mauzy · Answer

Thanks for the advice on PM licensing - I will talk to my real estate company. This friend is really a local phone number for the tenants to call if something breaks. He doesn't collect rents or do anything else. But great advice and I will look into the requirements. The rents on my properties are $5,000, $1,850 and $1,700. For $300/month I thought that was a good deal.

Jeff B. · Answer

Andrew is correct re PM licensing - - pay attention!!

Tax on property management services?

Most Popular Reply