Accurate record-keeping also reduces the risk of overpaying your taxes by not claiming every deduction you’re entitled to as a real estate investor.Keeping detailed records and backup all in one place makes it much easier to accurately track the true financial performance of your rental property and avoids errors when filing a tax return.The IRS will recalculate your taxes for you, and assess additional taxes, penalties, and interest. Expenses that can’t be backed up with a receipt or proof of payment will be rejected. If you’re ever audited by the IRS, you’ll have to prove your rental expenses are legitimate.It also helps ensure that you are taking every tax deduction you’re entitled to at the end of the year: Staying organized not only reduces the risk of getting audited, but also makes it easier to track your profitability from one month to the next. That’s why good record keeping is so important for real estate investors.Īccording to a post on BiggerPockets, large or vague deductions are one of the top three IRS audit areas every real estate investor needs to know. In order to gain the most from your rental property investment, it’s important to report all of your income and expenses as much as you (legally) can. The good news is that keeping track of the expenses of owning and operating rental property is easy when you use the best modern software specifically built for residential income property investors.
It’s also one of the least favorite things that most real estate investors want to do. Without it, you have no idea how your investments are performing and tax time quickly becomes a nightmare.
Tracking rental property expenses is an important part of investing in real estate.