Bookkeeping for Rental Properties: 9 Best Practices

They’ll know how to use different depreciation schedules and can make sure you’re not overlooking deductions that can decrease your tax bill. It comes with an online version, standalone versions, and a mobile app to help users manage their business wherever they are. Property Matrix comes packed with all the advanced features professional accountants would need, with the ability to customize everything, making this the best software for experienced accountants. Essential starts at $55 a month and offers features for up to 150 units.

Another important step in setting up your rental property expense tracking is to decide whether you will implement the cash or accrual method of accounting. If you prefer to record income and expenses as they occur, you should use the accrual method regardless of when the cash is received or paid. Platforms that help you easily and quickly track all of your bookkeeping needs from one app will provide the most convenience. You need accounting software for your rental property business that manages your finances without the stress. That way, you can dedicate your time to serving your tenants and keeping up your properties instead of struggling with calculations and spreadsheets.

This too will make it easier at tax time and to see if there are areas where you need to cut back on expenses. Rental property accounting doesn’t have to be stressful, especially with the right tools. Avail can help you track your income and expenses for multiple properties in one place — for free.

  1. You pride yourself on offering professional property management services to keep tenants comfortable and happy in their homes.
  2. There are many software applications available, and they vary in terms of features and price.
  3. Depreciation is a non-cash expense that real estate investors use to reduce taxable net income.
  4. Plus, its state-of-the-art security measures help ensure your data is protected, so you have peace of mind.

Commercial real estate property management is different from residential property management in a few key ways. For one, commercial properties tend to be much larger than residential ones, so the management team has to be able to handle a larger volume of tenants. Additionally, commercial leases are usually much longer than residential leases, so the manager needs to be prepared for a longer-term commitment.

According to IRS Topic No. 414 Rental Income and Expenses, most real estate investors operate on cash basis accounting. That means rental income is counted when it is actually received, and expenses are deducted when they are paid. It is recommended that you get a working knowledge of applicable tax forms as soon as you start your business. Doing so will make rental property bookkeeping a lot easier and more accurate.

Automate Bookkeeping With FreshBooks

For example, W-9 and 1099 forms are required from every employee and non-employees that do any work for your business. A W-9 form documents a contractor’s tax ID number and their type of business. A 1099 form will be additionally required for non-employees who made over $600 from your real estate business within a calendar year. They can also provide valuable guidance tailored to your specific situation. No matter how many rental properties you own, there’s a lot to keep up with when managing any kind of property.

Accounting Software vs. Hiring a Professional

Instead, you want comprehensive, intuitive, and powerful software to handle the unique challenges and opportunities of managing rental properties. When you’re completing these forms, make sure to take your time, double-check your calculations, and provide accurate financial information. Underreporting income or claiming excessive expenses could land you in trouble with the IRS.

It doesn’t mean you’ll discover some tax shelter or loopholes that will allow you to stop paying taxes. Real estate investors use rental property accounting to track property financial performance at the property and portfolio level. With the online accounting systems available today, many rental property investors handle their own bookkeeping each month, then have a professional tax advisor take care of filing year-end returns. Create a bank account for each individual rental property, along with a debit card or credit card. This makes it easier to track transactions by property and avoids the risk of commingling your personal expenses with your business expenses.

Income and Expense Tracking

Furthermore, it integrates with other common programs and can be learned by landlords with little accounting experience while still meeting the needs of more advanced users. Founded in 2016, tens of thousands of investors use Stessa to monitor over $45 billion in real estate assets. Designed for users of all levels of accounting experience, Property Matrix is a website-based software equipped with powerful and advanced features that have automation capabilities for expert users. Furthermore, all features are fully customizable, allowing experienced users to pick the top-of-the-line accounting features they need to improve their reporting efficiency. Rental property accounting is truly the backbone of any great real estate business that has proven any type of scale.

The amount of rental income you are going to declare depends on the form of accounting that you use. The most popular way is called the “cash-basis method,” and it requires you to report income as soon as you receive it and report expenses when you pay them. Another way of accounting for your rental income is the “accrual method,” which means you report your income when it’s earned the basic financial statements financial strategy for public managers and not when it’s received. However, many choose to invest in a reliable accounting program and keep track of their finances themselves. You can learn property management bookkeeping even if you have never read a financial statement. One of the best ways to save money with efficient bookkeeping is to track deductible expenses, including valuable landlord tax deductions.

That’s why both Hall and Pondelli recommend carving out time each day to stay on top of your t. For more information on deducting rental property expenses, refer to the IRS guidelines, or speak with one of our tax professionals who can provide more clarity. Use our rental property expense sheet to track your monthly expenses and income. Accounting for your rental income is a big part of running your business, as it is critical for understanding how much profit you are going to report on your tax forms and how much tax you are going to pay.

There are other advantages to rental property accounting software as well. It can help you track rental income on your rental properties, track business expenses, keep track of tenant rent payments, generate company financial reports, payment tracking, and accounts payable. Accounting software will make this process easier, less tedious, and more accurate. So what are some common mistakes landlords make when it comes to rental property bookkeeping? This includes things like repairs and maintenance, insurance premiums, and advertising costs.

In the digital age we live in, there is no excuse for not taking advantage of all the efficiencies to be gained by automating as much as you possibly can. Rental property bookkeeping doesn’t have to be a labor intensive task if you set things up right from the beginning. It can be a time-consuming process, which is why you might be tempted to put it off, but finding the right tool to help you get it done can save you plenty of money. Whatever you choose, get in the habit of keeping a record of all statements for money going in and out of your business. These are important to have, but you do have the flexibility to tailor your chart of accounts to the needs of your business.

By now, you’ve probably thought, “I need a cheat sheet for property accounting! The cash basis system may overstate how much cash a company has, which can lead to unfavorable investments. MRI Software has been in business since 1971, a testament to its reliability and expertise in providing a variety of services to clients across different industries.

FreshBooks Integrates with All Your Favorite Apps

For the sake of your own time and keeping records, it’s highly recommended that you go digital with your rental property bookkeeping. The property accounting method that you should use depends on the scale of your business. If you rent out a few of your properties, it may be easier to use cash-basis accounting to keep closer track of the actual cash you have on hand. However, if you’re operating on a larger scale with a variety of rental properties, you may be better off using accrual accounting because it gives you a clearer long-term view. From day one, you should set up a business account, including checking and savings that you will use for all of the expenses related to your real estate.

Using the accrual accounting method, you’ll record it as 1 payment per month in the next 6 months. Basically, accrual doesn’t track cash flow but records accounts receivables and accounts payable. When using the accrual principle in property accounting, you record income and expenses as they occur. While it’s certainly possible to keep track of rental property expenses by hand in a general ledger, there’s really no reason to do so.

In the context of real estate investing, this usually refers to comparing the accounting records for a rental property with the actual bank statements and receipts. This is important because it helps to ensure that all income and expenses are accounted for, and that there is no fraud or embezzlement taking place. Having a bookkeeping process in place removes having to total up all your expenses at the end of the year or when it’s time to complete your tax forms. Real estate investors usually use Schedule E (Form 1040) (Supplemental Income and Loss) to report income and expenses related to rental property. A good rental property accounting template categorizes income and expenses according to Schedule E to help make financial reporting and tax filing easier. Rental property accounting works a little bit differently than accounting in other industries.