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Rental Accounting

Tracking Rental Property Expenses: What Landlords Need To Know

Accurately tracking your rental property expenses is essential if you want to maximize your rental property tax deductions.

However, keeping detailed records of deductible expenses isn’t always straightforward, and filling out your tax return at the end of the year to maximize benefits can be time-consuming. This is especially true if you don’t have a rent tracker like Landlord Studio to store all your important documentation and to keep up-to-date records of your income and expenses in real-time.

Staying organized throughout the entirety of the tax year will save you time and money — and keep you sane.

Four Reasons to Keep Detailed Rental Property Expense Records

  1. Having detailed, well-organized accounts stored in one place will make filing your taxes easier, faster and more accurate.
  2. Keeping accurate accounts means you won’t miss out on any deductions and won’t end up overpaying your taxes.
  3. Your financial data will be more complete and accessible, allowing you to plan for the future, grow your business and reach your financial goals.
  4. The IRS audits thousands of companies each year. If they have any questions about your tax return you will need proof to back up your claim. If you can’t come up with the proof your claim will not be honored, and you may need to pay additional taxes and penalties.

What Records Should You Keep Track Of?

Everything. That’s the short answer anyway.

The IRS is known for auditing small companies — and ignorance is not an excuse for mistakes. If you show losses for consecutive years you’re more likely to draw the attention of the IRS. Additionally, not all auditing agents are fully aware of all the nuances surrounding real estate tax laws, which could mean they’re more likely to question particulars in your claims than they are for a regular business.

To be on the safe side, you should have accessible records of everything.

Permanent Records

Landlords don’t just need to keep track of expense receipts and rental income: there are also several documents you need to file and keep indefinitely. A few examples of these documents are:

  • Your current and past tenant leases.
  • Records of all communications between yourself and your tenants.
  • Legal documents such as fines, inspection reports, and court appearances.
  • Records if you have incorporated your rentals as an LLC (or other).
  • Your insurance policies.
  • Loan documents such as mortgages.
  • Past years’ taxes.
  • Property title/deed.

You can store all these documents as secure digital records in the Landlord Studio rent tracker app. This will allow you to do away with the endless filing cabinets and shoeboxes of receipts. Instead, everything will be neatly organized inside the app according to organization, property, and lease.

Download Expense Tracking Guide

Deductible Rental Property Expenses Landlords Need To Track

Every landlord needs a good system to track their rental expenses. Some examples of deductible expenses that you need to keep detailed records of include but are not limited to:

  • Advertising costs for your property. For example, listing fees on websites such as Zillow or agency fees if you contracted an agency to find tenants for you.
  • Professional fees. Including accountancy fees, Landlord Studio costs, and legal fees such as legal documents or a consultation with Rocket Lawyer.
  • Office expenses such as a second phone for business use or office supplies.
  • Repairs and property maintenance, such as repainting, plumbing repairs, HVAC repairs etc.
  • Travel expenses. For example, gas for journeys to and from your investment property for maintenance or routine inspections.
  • Utilities. If you are paying the utility bills for your properties, these are a business expense. If tenants pay for utilities, you can mark these expenses as payable by the tenant in the Landlord Studio app.
  • Employee wages.
  • Property depreciation.

It’s important to understand the difference between capital improvements and repairs, as, whereas maintenance and repair costs are deductible at the end of the year, you will need to depreciate capital improvements over their “useful lifetime”.

Note that exactly which expenses qualify as allowable deductibles can vary depending on your location. We advise you to seek qualified advice from a licensed professional to determine what is an allowable rental property expense for your particular situation.

In addition to tracking these key rental expenses with a quality, industry-specific rent tracker like Landlord Studio, you should keep detailed records of all your other income.

Read our article Tax Deductible Expenses for Landlords for more information and a detailed description on these key deductibles

What To Look For In A Rent Tracker

As part of our mission to improve the lives of landlords and tenants through innovation, we have optimized the rental tracking feature in Landlord Studio based on user feedback.

Our landlord app makes it easier than ever to not only store relevant documents and record your rental income but also to organize all your deductibles. You can connect your bank account to view and reconcile expenses with a few quick taps, easily connect your bank account, set recurring expenses, create rent reminder emails, and instantly generate professional reports from any device.

Do away with your Excel spreadsheets and boxes of receipts. Let Landlord Studio look after all your rental tracking needs.

Smart Scan Receipts

A feature we released at the beginning of 2020, smart scan receipts allow you to take a picture of your receipts using your phone. The app then reads the receipt details and enters them automatically into the system. Hit save to log the expense and store the digitized receipt in our secure cloud server for future reference.

Reconciling from Your Bank Account

This feature allows you to connect your bank accounts to your Landlord Studio account. You can then access your bank account transactions and reconcile income and expense transactions inside the app.

For example, let’s say you pay $100 for property maintenance. Open the app, go to bank feeds, and tap on the outgoing expense. Then, hit reconcile, select the relevant property, and save.

Note: This feature is only available in the U.S., UK, and Canada, but we will be rolling it out to other countries as soon as we get the green light from the relevant regulating bodies.

Manually Enter Expenses

Alternatively, you can enter your expense details manually — you can do this for any expense. However, it is particularly important for creating recurring expenses and creating expenses that are payable by tenants.

Set Up Recurring Expenses

For recurring expenses such as mortgage payments, you can set payments to automatically recur, saving you time and removing any potential for human error.

Payable By Tenants

Not all property expenses are the landlord’s responsibility; you need to pass some expenses onto the tenant. For example, any damage that goes beyond normal wear and tear would be a tenant’s responsibility.

As the expenses you are allowed to pass onto tenants vary according to your state and country, be sure to check your local laws and regulations.

Generating Reports

Of course, all this tracking of income and expenses is only as good as the reports you can generate. We have several professional reports, available to view on various devices. Popular reports include our:

Mobile First

A key benefit of Landlord Studio over other software on the market is that users can access their account on any device. This means you can update your accounts anywhere at any time.

For instance, you can snap a picture of a receipt while you’re in the hardware store parking lot and your accounting will be complete before you’ve even put your seatbelt on.

Selecting The Right Rental Tracker

Having a quality expense and rent tracker will save you time and enable you to maximize your landlord expense deductions.

Tracking your rental property expenses is easy with Landlord Studio. The tool allows you to connect your bank account to reconcile expenses from inside the app, digitize receipts at the point of sale, and even automatically track income using our online rent collection feature.

Plus, you can instantly generate any of the more than 15 accountant-approved reports to gain nuanced insights into the performance of your portfolio to spot discrepancies and maximize cash flow.

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Ben Luxon

Ben is the editor and lead writer for Landlord Studio. He has worked with real estate professionals all over the world and written educational articles on tech, real estate, and financial growth for sites such as Forbes, TechBullion, and Business Magazine.

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