Rental property records for Schedule E: what US landlords should keep

A rental property is a small business with a long memory. The receipts you deduct this year sit next to records you'll need decades from now, when you sell and the IRS asks what you paid for the house and every improvement since.

Here is what to keep, and why each piece matters on Schedule E.

Rental income#

Record everything tenants pay you, and watch two special cases:

• Advance rent is income in the year you receive it, whatever period it covers. The IRS example: a year's rent plus the last year's rent paid up front at the start of a lease is all income in the first year.
• Security deposits aren't income if you plan to return them. If you keep part or all of one because the tenant broke the lease, that part is income in the year you keep it. A deposit meant to be the final month's rent is advance rent.

Keep leases, rent ledgers and bank statements showing deposits.

Deductible expenses#

Publication 527 lists the most common rental expenses:

• advertising;
• auto and travel expenses, and local transportation;
• cleaning and maintenance;
• commissions and management fees;
• depreciation;
• insurance;
• mortgage interest, other interest and points;
• legal and other professional fees;
• rental payments;
• repairs;
• taxes and utilities.

For each, keep the receipt, invoice or statement: your lender's Form 1098 for mortgage interest, the insurance declaration, the property tax bill, the contractor's invoice. For vehicle costs, you need records that follow the rules in Publication 463. Expenses of managing, conserving or maintaining the property are deductible from the time it's made available for rent.

Repairs, improvements and depreciation#

A repair is deducted in the year you pay for it. An improvement, such as a new roof or an addition, is capitalized and depreciated, over 27.5 years for residential rental property. The building itself is depreciated too, from when it's ready and available for rent, but land never is.

That's why the purchase records matter: your settlement statement and the split between land and building set your depreciation for as long as you own the property, and your adjusted basis when you sell. See repairs versus improvements for how to tell them apart.

If you use the property yourself#

If you sometimes use the rental personally, you must divide expenses between rental and personal use, and your deductions may be limited:

• The property counts as your home if you use it personally for more than the greater of 14 days or 10% of the days it's rented at a fair rental price.
• If you rent it for fewer than 15 days in the year, that period isn't treated as rental activity.

Keep a calendar of who used the property and when, alongside the booking records. Those dates decide how much of each expense you can deduct.

Keeping it together#

Records can be paper or digital. For how long each kind should be kept, including the longer periods that apply to property, see how long to keep receipts for the IRS.