Tips on Property Management Rental Income, Deductions and Record keeping.

What Records Should I Keep?

Good records will help you monitor the progress of your rental property, prepare your financial statements, identify the source of receipts, keep track of deductible expenses, prepare your tax returns and support items reported on tax returns.

Maintain good records relating to your rental activities, including the rent and the rental repairs. You must be able to document this information if your return is selected for audit.

Keep track of any travel expenses you incur for rental property repairs. Separate receipts for minor repairs like plumbing, fixing a broken door or minor repainting from receipts for capital improvements like adding a new roof, remodeling a kitchen or installing insulation.

You must be able to substantiate certain elements of expenses to deduct them. You generally must have documentary evidence, such as receipts, canceled checks or bills, to support your expenses.

If you are audited and cannot provide evidence to support items reported on your tax returns, you may be subject to additional taxes and penalties. For example, if you cannot substantiate the rental real estate expenses of replacing the door locks, with appropriate records, the IRS may disallow that expense which may mean that you incur additional taxes and penalties.

You need good records to prepare your tax returns. These records must support the income and expenses you report. Generally, these are the same records you use to monitor your real estate activity and prepare your financial statements.

Tags: Condo & HOA Accounting, Management News