If you own a rental property, keeping accurate records is critical for filing accurate tax returns, avoiding legal issues with tenants/property managers, and providing evidence if the tax authorities audit you.
Good records will assist you in monitoring the progress of your rental property, preparing the rental schedule, identifying the source of receipts, tracking deductible expenses, preparing tax returns, and supporting items reported on tax returns. Here are some Rental Property Recordkeeping Requirements:
Income and Expenses
Maintain income and expense records as if you were anticipating an audit. Keep separate records for each property you own and document your income with bank statements. Maintain records that prove your expenses and support every deduction you claim for repairs, maintenance, land taxes, council rates, body corporate fees, capital improvements, property management fees, and other allowable deductions.
Property Manager’s Statements and Correspondance
Maintain a file for each tenant that includes their contact information, a copy of their signed lease, a list of references they provided, a record of their security deposits and all rental payments, and documentation of all communication between you and them. If you are with a property manager, the property manager will perform this task for you and provide you with the rental statements on a monthly basis and on annual basis.
This will include records of your screening interviews, complaints, property damage records (including invoices and receipts for property repairs), notices you’ve sent to the tenant, and their responses. These records will be crucial if there is a disagreement over the return of a security deposit or if it becomes necessary to evict a tenant. Further, the correspondence with the tenant will be useful if you have to categorise an expense as maintenance instead of a capital improvement
Mortgage and Insurance Documents
Another critical aspect of landlord recordkeeping is safeguarding financial information related to the purchase of the property. Keep the mortgage documents, deeds, and insurance policies of the property in a locked, printed form or scanned copies.
Financial Transactions and Legal Documents
If you had to take legal action to evict a tenant, or if a tenant filed a legal complaint against you, keep detailed records. Ensure that the necessary records are kept for the required period of time and that documents supporting your case are securely stored.
The Bottom Line
Maintain detailed records of your rental activities, including rental income and expenses. If your tax return is chosen for an audit, you must be able to document this information. You may be subject to additional taxes and penalties if you are audited and cannot provide evidence to support items reported on your tax returns.
To prepare your tax returns, you must keep accurate records. Work with your Tax Accountant to determine the retention period for all records related to your rental property investment. It is your responsibility as the property owner to maintain access to those records.
At Rands Financial Services, we provide proven Taxation, Accounting, and Mortgage Broking Services to Real Estate Investors and Rental Property Owners. We also assist with income tax returns, including rental property tax issues, capital gains, and negative gearing.
Please feel free to connect with Rands Financial Services on 0434391331 or drop a message via https://randstax.com.au/contact-us and we will be happy to assist you!