Yet another Property Investment Tax Question...... This time regarding Property Management Firms.....?

It's my understanding that you can deduct the fees that you paid a company to manage investment property?

Well what if I was wanting to start my own property investment firm? Could I manage my own properties and charge myself a fee and get it back on my taxes at the end of the year? Or would that open a whole new can of worms?

What if a family member had a property management firm and they charged me slightly over the norm to manage the property?
You guys see what I am getting at? I'd rather keep my money circulating between my family members than the government, especially if I can claim the management fees on my taxes at the end of the year.

Is my reasoning unethical?

No it's not unethical, but all you'd be doing if you started your own property investment firm, is reduce income one way and increase income the other way. Really would not reduce your taxable income at all, and might change regular income (rental income from the properties) to self-employment income (management fees earned by the property investment firm) which would be taxable both regular tax, and self-employment tax. Also, if you paid a family member to manage your properties, they would have to pay taxes on the income as well. The only way that that might have any effect on taxes between you and the family member would be is if the fee you were charged brought down into a lower tax bracket federally, without raising them up a tax bracket. You can claim management fees paid, but only as an expense, not as a deduction of sorts. I think all you'd be doing is paying extra legal fees to create all these different enterprises, and making the lawyers rich, and yourself poor.

TFBA Report It

Theoretically you could but....

Whatever you would deduct as a "management fee" would be included as income some other place on the return.

In fact, you would be changing passive income in to self-employment income and the net effect would be to increase your taxes.

If you paid a family member to manage your property, they would have to claim it is self-employment income also. The net effect would be an increase in over tax liability.

If you set up your own firm, then you could deduct the money but would have to then claim it as income, so it would be a wash.