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Rental Accounting

5 Tips To Simplify Your Rental Property Accounting

Unless you’re a chartered accountant or an experienced financial pro, managing your accounting as a landlord can be pretty overwhelming. And just like with any business, one financial misstep could cost you.

Having accurate and efficient rental property accounting then, allows you to maximize your rental property returns and free up your time. The right tools can help you not only keep accurate accounts but ensure you don’t miss deductible expenses as well as come with advanced reporting features to give you a clear oversight of your finances.

In this article, we explore 5 tips to help you set up and simplify your rental property accounts so that you can maximize your profits and spend more time doing the things you want to do.

1. Separate Your Finances

The first step is ensuring that your rental property bank accounts are kept separate from your personal and independent of other rental properties. Setting up a bank account for each rental property will save you a huge amount of time in the long run. You won’t need to dig through thousands of transactions wondering what each one was for, which property it might relate to, or if it in fact is even a deductible expense rather than a personal expense.

“Keep separate bank accounts for each property.”

Innovative CPA Group

As long as you ensure all transactions flow through the respective property’s bank account, you won’t be burdened with chasing down receipts at year-end to remember what a certain expense is related to. It’s important to note that your bank accounts do not need to be business bank accounts unless the property is owned by an LLC.

There are several solutions that make reconciling transactions from your respective bank accounts easier. One of these is to use a solution like Landlord Studio. This allows you to link your bank accounts to view and reconcile income and expenses directly from your bank feed. This means you don’t need to flit between various apps or print of bank statements and then manually enter your data into your income expense tracking tool.

2. Track Your Expenses in Real-Time

One of the key issues that many landlords encounter is forgetting to record an expense or putting off their accounting to the end of the month or even year.

The result is they are left with a massive and unwieldy admin task and often forget to record some of their deductible expenses. These expenses then don’t get reported on their Schedule E and they don’t get claimed back. Ultimately, this mistake can cost a landlord thousands of dollars a year as well as creating an unnecessary, time-consuming, and often stressful task.

Instead of allowing admin to build up, it is recommended that landlords record their expenses as they happen. This is one of the key benefits of cloud-based software. With Landlord Studio there is even an app which means that you can simply open your phone and add your expense at the point when it happens. An hour-long task huddled over a spreadsheet is reduced to a few minutes here and there.

Additionally, one feature we released earlier this year is our Smart Scan Receipt. This allows you to snap a picture of your receipt, the software will automatically read and input the details of the expense. Simply hit save, and voila.

track expenses with landlord studio

3. Set Up Automatic Payments

If you own multiple properties, then you’re dealing with multiple mortgage payments, insurance premiums, and more, month after month. Instead of dealing with these manually, set up automatic payments to be paid straight from your bank. As long as they’re scheduled to come from the correct, property-specific account, it should make managing things significantly easier.

In Landlord Studio you can then set up these expenses to recur in the software automatically meaning not only are the expenses being paid on time without you having to worry, but these expenses are being accurately recorded in your rental property accounting software.

This tip can also be applied to tracking your income. For example, by employing software for online rent collection you can allow your tenants to set up automated payments for their rent. When rent is collected through Landlord Studio, and the income will then be recognised by the system and automatically reconciled against the relevant property.

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4. Prepare For Your Schedule E

At the end of the day, or at least at the end of the year, regardless of what expenses you deduct, you will likely report your property income on the Schedule E, Form 1040. Your rental property accounting systems should be designed with this end goal in mind.

To make your life, or your accountants life, as easy as possible you will want to break down and categorize income and expenses in the following manner:

  • Rents
  • Refunds from Tenants
  • Advertising
  • Travel
  • Cleaning & Maintenance
  • Commissions
  • Insurance
  • Legal & Other Professional Fees
  • Management Fees
  • Mortgage Interest
  • Repairs
  • Supplies
  • Taxes
  • Utilities
  • Phone
  • HOA
  • Bank Fees
  • Other
IRS Schedule E Form 1040
schedule e form 2020
Landlord Studio Schedule E Report
schedule e landlord studio

By categorizing transactions in the manner listed above, you’ll be matching the IRS Schedule E form. In Landlord Studio these categories are already set as default, though you can add or edit these categories as you see fit.

Once your data is inputted you can instantly generate reports, including our specific Schedule E report, and either print, download, or email straight to your accountant.

You can learn more about different ways to split expenses from IRS Publication 527.

5. Use The Right Tools

Getting your rental property accounting under control can seem like a bit of a daunting task. Thankfully though there are numerous solutions on the market design to do the heavy lifting for you. Meaning that your “passive” rental income is actually (almost) passive.

Landlord Studio, for example, can help with everything from income and expense tracking and reporting to managing tenant communications and tenant screenings, management, and collecting rent.

Key accounting features of Landlord Studio include:

Final Words

By combining the simple tips laid out in this article with few nuggets of bookkeeping wisdom landlords can maximize deductions and reduce their overheads while simultaneously gaining a clearer oversight of their finances.

For example, “it’s important to understand how depreciation works, the difference between a repair and an improvement, that you may have to file an annual report with the town for tax assessment, that the mortgage principal is not a deduction (only the interest portion is),” said the accountants of the Innovative CPA Group, “and of course make sure to put aside money for surprise expenses.”

On a final note, its always advisable to seek advice from a qualified professional to ensure everything is tracked and reported accurately.

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Income and Expensesincome expense trackingReal EstateReal Estate InvestingRental managementRental Propertyrental property accountingRental Property Expenses

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Ben Luxon

Ben is an author and real estate enthusiast. His interest in all things entrepreneurial has led him to work with real estate professionals all over the world, distilling their knowledge into articles and Ebooks.

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