Property Records

Speculating or investing in property and real estate can be a major source of income for the savvy investor, or can even provide a full time income for those who have the necessary skills and capital. Numerous tax deductions are available and constitute an excellent advantage over investing elsewhere such as the stock market or in start-up enterprises. Naturally, the maximization of such tax deductions will be of utmost concern to each investor. The recording, maintenance, and efficient utilization of comprehensive property records then are vital in this process. The yearly tax return must include such property records. They will also be useful should the IRS come calling for an audit.

Keeping comprehensive property records allow the investor or homeowner not only adhere to government regulations and requirements, but also evaluate a property’s performance when making decisions regarding renting, selling, or renovating. In addition property records kept to a high standard are elemental when seeking to refinance or mortgage property. When scrutinizing such property records it is advisable to do so with the help of a tax adviser and accountant. This will ensure that you are in a better position to deal with potential problems. Should you wish to place the property on the market, you will also be better prepared.

As a real estate investor or homeowner the following are some of the types of property records that should be kept.

•    Purchase Contract And Closing Statement – documenting the final sale price of the property is absolutely essential as it is the basis from which depreciation may be calculated, also providing a figure from which capital gains may be calculated for tax purposes.

•    Complete Expenditures For Capital Improvements – extending the life of a property or adding to its value falls under capital improvements. Such improvements may include important structural work such as repairing roofs or more superficial jobs such as painting and decorating. If such work is carried out before putting the property into service and collecting rents then the cost of the capital improvements may be included in the basis for tax purposes. Contrarily, if such capital improvements are carried out subsequent to the property being rented then they may still be depreciated however the must then be separately done from the depreciation of the purchase price basis by means of the Modified Accelerated Cost Recovery System (MACRS). While the costs of capital improvements may be depreciated according to MACRS, any costs associated with maintenance may not be.

•    Rental Income Records – It is essential to keep detailed accounts relating to the income made from rental properties, as well as records relating to the tenants themselves as part of your property records. The income data will be vital for filing tax returns, and information on the identity of your tenants as well as the dates of their rental agreements are useful in maintaining control over the property and should be saved in case of any legal disputes.

•    Operating Expenses – These should be a key component in any set of property records. They should include maintenance and repair fees, advertising costs, utilities, management fees and real estate commissions. These are tax deductible and should reduce your liability.