Best Bookkeeping for Rental Property: Track Receipts, Create Reports, and Prepare for Tax Season by Spencerbauch


what bookkeeping do you need for rental property

It does not matter how prepared you are; unexpected expenses like appliance replacement and varying maintenance costs will always be unforeseen. Managing your statements and planning your bills properly will avoid many financial problems and guarantee profits. Property managers and landlords have unique accounting needs, particularly when managing the financials of their properties. Nowadays, property managers and landlords need a more customized solution to handle the increasing demands of managing properties at scale. Keeping a solid track record of your expenses is one of the basic principles of successful bookkeeping. To do that, you will need a system that will help you to see the big picture and calculate how much money your properties generate compared to how much you spend on them.

  • But the smartest move is to set up both a checking account for each of your properties to manage most of the finances, and a separate savings for each of your properties to manage deposits.
  • Understanding how each transaction can affect your investment is extremely beneficial in making plans and decisions.
  • TenantCloud does have a free tier, but many of its most powerful accounting features require subscribing to a paid tier.
  • I am currently managing the bookkeeping and accounting myself but the more I acquire properties, the more my time is sucking into just bookkeeping and accounting.
  • Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.

In order to maximize the returns on your real estate investment, it’s important to understand how the accounting works. Property managers often handle bookkeeping in addition to other tasks, such as filling vacancies, collecting rent, and managing maintenance requests. It should go without saying, but seek out a tax professional with expertise in real estate investing; that will reduce the chances you’ll accidentally underpay or overpay your taxes. Next, it’s time to choose a bookkeeping method; either single-entry or double-entry. In single-entry, all financial items, both incoming and outgoing, are entered just once.

How We Chose the Best Accounting Software for Rental Properties

Stay current with the changes in tax code that will impact what you can and should deduct. And remember that your tax strategy needs to be intertwined with your business strategy. A knowledgeable CPA and advisor is your best friend, but you can also stay up to date by checking out Buildium’s 2022 Tax Guide for Property Managers. Whether you have a trusted CPA you want to work with or a property management mentor you rely on for advice, it’s always helpful to seek a second opinion. One way to accomplish that comparison is by using a bank synchronization tool if available in your software. It is a time-saver in making sure transactions match both locations prior to a proper reconciliation.

This might seem obvious to experienced real estate investors, but it’s imperative for rental property and real estate investors to keep their personal expenses completely separate from any business expenses. Opening up separate bank accounts and lines of credit is highly suggested to avoid any confusion. When personal and property expenses become merged, this is referred to as “commingling funds” and is a big no-no in the tax world. When expenses become blurred between personal and business-related, the IRS can easily flag the property for malpractice.

Is QuickBooks a Good Rental Property Accounting Software?

So for example, if you use cash accounting to track rent payments, you’ll denote when the rent payment hits your bank account. Whereas if you use accrual accounting, you’ll denote when the rent payment is due. Plus, if you’re getting help from a tax professional, organizing your finances ahead of time could help you save on their fees. 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. Not having a bookkeeping process in place for each rental can make it harder to catch when a property is too expensive to maintain or gauge its profitability in a changing housing market.

This record keeping also helps when you want to calculate performance metrics for your property. In addition to accounting features, Azibo offers free solutions for banking, rent collection, insurance, loans, and other property management tools. Azibo also simplifies bank reconciliations by automatically importing your statements, saving you time and eliminating human errors. That means you can manage your entire rental business in one platform, with one login — for free. General ledgers act as a record of all financial transactions incurred by a property or multiple properties.

RentRedi Adds Customization Features to its Property Management Software

The easiest and most effective way to manage this step is to find a purpose-built software. Landlord Studio is a property management and accounting solution designed to make your rental property bookkeeping as easy as possible. Quickly and easily set up your properties in the app and track your finances on a property by property basis with default categories already inline with IRS tax requirements. Plus, you can easily digitize and store all of your supporting documents in the same place.

What type of account is rent owing?

Rent Payable is a liability account in the general ledger of the tenant which reports the amount of rent owed as the date of the balance sheet.

Although some real estate owners use standard worksheets to record their transactions, this form of bookkeeping might become slightly overwhelming if you manage several properties and need a reliable system in place. That’s where good accounting software comes in, and while it might cost you upwards of a few hundred dollars a month, it will make the process a whole lot easier. 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.

Solid bookkeeping for property management not only keeps you in the black, but it also keeps your business compliant and reduces the risk of liability. Still, knowledge is only one piece of the equation—you also need to make sure the quality of data you’re collecting is sound. That’s why both Hall and Pondelli recommend carving out time each day to stay on top of your t. A monthly reconciliation helps you find typos, duplicates, missing entries, and bank errors. It should be done at the end of every month to ensure that there’s no missing money or overpayments. I’m an accountant so I like to earmark my funds for various future expenses, such as capital expenditures.

They can also be used to evaluate the financial performance of a rental property and plan for future investments. Rental income consists of rent payments, late rent fees, pet fees, termination fees, and appliance rental fees. Just as there are many different types of rental income, there are also many different types of expenses.

After all, as far as dedicated accounting solutions go, QuickBooks is the most robust. The problem is that, as you grow, you’ll quickly notice that QuickBooks isn’t designed for managing rental properties. You might notice that we don’t include QuickBooks or any other dedicated accounting software rental property bookkeeping on this list. A notable property management software like DoorLoop can help you with much more than you may expect. Rental property accounting software has come a long way since QuickBooks. Avery Carl was named one of Wall Street Journal’s Top 100 and Newsweek’s Top 500 agents in 2020.

  • To do that, you will need a system that will help you to see the big picture and calculate how much money your properties generate compared to how much you spend on them.
  • This accounting system will serve as a guide on how to increase revenue and strategically reduce expenses.
  • A monthly reconciliation helps you find typos, duplicates, missing entries, and bank errors.
  • The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor.
  • Rental properties come with a lot of unexpected and fluctuating expenses.

It includes accounts for revenues, expenses, assets, liabilities, and equity. The general ledger is used to track the financial performance of a property, including revenue and expenses, as well as to prepare financial statements such as the balance sheet and income statement. It also serves as a source of information for decision making and budgeting. Transactions are recorded in the general ledger in real time, allowing for up-to-date financial information to be available at any point in time. You’ll use Form 1040 for your individual income tax return, but you’ll also need to report income and expenses for your rental properties.

Visit this resource for recommendations on the best financial software for real estate investors. Here are 10 property management bookkeeping best practices and tips to help property managers stay in the black. Both DIY landlords and property managers need to create a well-defined accounting system, to help them stay organized. Property managers are additionally tasked with adhering to trust account guidelines and properly handling owner funds. Below are some tips about tax reporting, recordkeeping requirements and information about deductions for rental property to help you avoid mistakes.


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