Accounting for Rental Properties: What You Need to Know

But there are ways to make the process easier without having to hire outside help. Of these three options, Stessa is the only rental property accounting software that is free, while offering optional premium services such as rent analysis, mortgage financing, and market research. While a basic worksheet for rental property accounting can be okay, it’s easy to forget to report income or double-count an expense, two innocent errors that can create problems with the IRS.

How to Handle Rental Property Banking

Schedule E forms essentially provide a summary of rental income and expenses for each property owned by the landlord. Incorrect bookkeeping and accounting practices can result in lost rental income, overpayment of taxes, higher expenses, and low returns on investment. With a proper rental accounting system, landlords can yield better returns from rental properties and earn tax benefits offered by IRS.

Prepare for Tax Season

Note that the sample Schedule E below does not have an expense line item for the mortgage payment, only for mortgage interest. That’s because interest on the mortgage is tax-deductible for real estate investors, while the mortgage principal payment reduces what is payroll tax the mortgage liability you have on the balance sheet. Accurately keeping track of your income and expenses also makes it easier to plan for future expenses so that you have money in the bank when you need it. Sometimes, rental property depreciation can create negative taxable net income, even when the property is cash flow positive.

1. Easy-to-use, free online rental property software from Stessa simplifies the process of tracking income and expenses so that you can run financial reports with a single click.
2. The cash method of accounting reports income at the time it is received and bills at the time they are paid.
3. Understanding the basics of how rental property accounting works is important, even when you use an online financial reporting system to sync income and expenses.

While his real estate business what are the types of costs in cost accounting runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios. An even better option is to digitize your bookkeeping by using a system such as Stessa. You can use Stessa to connect accounts quickly and securely so that income and expenses are automatically synced to your performance dashboard.

Income and Expense Tracking

For example, if you use a rental listing website to advertise and lease your property, that expense could be treated as an advertising or professional fee expense. Check with your accountant for the best practice, then be consistent with how you treat the expense each year you file Schedule E on your 1040 tax return. If your actual expenses don’t match the line items on Schedule E, you’ll need to choose the best expense category provided by the tax calculator to estimate your tax refund and tax return IRS.

While this is not an exhaustive list, the items above should make up the bulk of your real estate expenses that may be currently used to offset your income. You can either deduct them now as part of the previous fiscal year’s expenses or you can deduct their depreciation over time. Fortunately, with the right tips and knowledge, you can make tax time a lot easier and maximize your return.

In addition to rent totals, Azibo rent rolls include key information like owner’s name, address, unit type, number of bedrooms and bathrooms, square footage, and lease start and end dates. In one report, Azibo allows you to assess your rental units’ monthly performance and your tenants’ ability to pay rent on time. This report is useful to any real estate investor looking to understand their rental performance, and banks often require this report when applying for a loan to purchase property as well. Then set up all of your income and expenses for a given rental house to run through that specific account.

So if I go to Home Depot for both personal items and rental property items, I check out twice. Xero is cloud-based accounting software for small to medium-sized businesses across numerous industries. It has robust accounting features such as invoicing, bank reconciliation, and financial reporting.

Fortunately, there are several tools out there that can help you take care of all your real estate accounting tasks. One of these is Azibo Accounting, the first landlord & real estate investor-focused accounting software that’s backed by leading real estate CPAs including Brandon Hall (The Real Estate CPA). Preparing yourself for tax season will help you simplify your tax return filing and maximize the benefits available to rental property investors. It’s important to maintain good records in order to track the financial performance of your rental investment. With accurate financial statements, you’ll always be prepared in case of an audit. SimplifyEm offers a suite of tools that include online leasing, rent collection, lease management, resident portals, and financial reporting.