Rental Property Accounting + Bookkeeping: A Landlord’s Guide

accounting for landlords

Firstly, it’ll save you a huge amount of stress at tax time if all you need to do is runa. Secondly, you’ll be able to generate monthly reports to get detailed insights into your finances and fine-tune your opeations for increased cash flow and profitability. And finally, it will allow you to maximize your end of year tax deductions while making your accounts completely audit proof. Rental property accounting is crucial for landlords looking to analyze their investments, prepare for tax season, and keep track of money going in and out.

Completely taking the stress out of paying and managing your taxes, so you can focus your time on what really matters to you. By tracking rental income, you ensure your prices are fair and generate enough income to cover your expenses. This metric also helps you calculate your gross rental yield, which is the rental income earned as a percentage of the property value. You can use this to compare the performance of your property to competitors’ properties in the same market. One of the most vital parts of tracking is understanding deductible rental expenses like legal fees and repair costs.

What Are the Basic Principles of Rental Property Accounting?

Having the right tools in place can help you manage finances for a rental property. Both highly intuitive and easy to use, DoorLoop has everything you need to manage your rental properties with ease. It lacks some of the more comprehensive accounting features you might need. Still, like most of the tools on this list, it also integrates with dedicated accounting software like QuickBooks for more functionality.

How do you record rent expense?

Rent Expense Under the Accrual Basis of Accounting

Under the accrual basis of accounting, if rent is paid in advance (which is frequently the case), it is initially recorded as an asset in the prepaid expenses account, and is then recognized as an expense in the period in which the business occupies the space.

Chanahra is a seasoned writer who is dedicated to helping readers like you turn their houses into homes. When she’s not encouraging you to make the most of your rental, you rental property bookkeeping can find her exploring the outdoors, experimenting with new recipes, or shamelessly bingeing HGTV. MRI Software doesn’t have specific pricing tiers or a free trial version.

Create a checking account for each property

However, it’s not an ideal option unless you’re just starting and testing the industry. To help reduce issues the IRS actually defines the different expense categories for you to use.

In addition, keeping your financial data unique to each property will allow you to identify any particular properties or units that are eating into your rental income. Azibo joined forces with Brandon Hall to improve the rental property bookkeeping experience for independent landlords. Brandon and his team of elite CPAs help real estate investors nationwide reduce tax liability and gain financial clarity. Together, we built a rental property accounting software solution from the ground up to help landlords ensure compliance, save money and time, and eliminate common tax errors. Having separate bank accounts keeps a landlord’s personal funds separate from business funds. This allows you to better track income and expenses and simplify accounting and bookkeeping.

How Does Accounting Software Differ From Bookkeeping Software?

To account for this unearned rent, the landlord records a debit to the cash account and an offsetting credit to the unearned rent account . In the month of cash receipt, the transaction does not appear on the landlord’s income statement at all, but rather in the balance sheet . It’s difficult to know exactly what to keep records of and what can qualify as a “deduction” when running your rental business. And while hiring an accountant is ideal, it isn’t always the most cost-effective option for everyday landlords. Just like best practices, there are specific rental property accounting terms you need to know.

  • For now, a basic overview of W-9 and 1099 forms will be helpful, but be prepared to learn more about these requirements as you run your business.
  • 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.
  • Many different tools and apps exist solely to help improve your accounting systems.
  • Save yourself time and hassle by centralizing your processes with easy documentation, automation, work order management, and robust accounting features.
  • Good accounting processes are thankfully easy to accomplish with the right tools.

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Track Your Expenses with

Accounting software for rental properties captures day-to-day income and expenses while enabling users to run insightful reports to help them scale their business. The software saves landlords hours, if not days hunting for receipts to assemble their tax returns at the end of the year. On the flip side, you will also incur expenses when operating a rental property. Common expenses include routine maintenance, repairs, paying outside vendors for landscaping and other services, and the tools required to maintain the property. Some landlords will also pay for the utilities of the property, which would count as an expense.

accounting for landlords

Doing so will make rental property bookkeeping a lot easier and more accurate. 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. Everything from automatic payments and withdrawals to reminders can be automated. Small tasks should be automated; everything that can free up your time will make rental property accounting easier and more accurate.