Rental Property Accounting & Bookkeeping

It may appear that renting out your property is an easy way to boost your income. It is, nevertheless, a legitimate business operation that must be treated as such, particularly if you have a large number of rental properties. So, what impact does this have on you?

It means you'll have to make sure your financial records are in order so you'll have all you need when it comes time to declare your earnings and file your taxes. The cornerstones of accurate, IRS-compliant financial reporting are proper bookkeeping and accounting. Furthermore, as you are presumably aware, rental property revenue and expenses are unpredictable, demanding the ability to anticipate and plan utilising accurate financial records.

Rental Properties Accounting

Implementing an accounting system for a few rental properties may appear time-consuming, but it could help you maximise your investment while also maintaining in good standing with the IRS. If you implement rental accounting systems early on, you'll be able to put yourself in the best financial position moving forward.

Accounting for landlords is essential since it allows you to:

• Keep track of which of your properties are profitable and which are a waste of money.
• Ensure that the financial commitments of each rental property are met.
• Prepare financial statements that you may use to budget for unexpected expenses and anticipate and plan future investments.
• Provide accurate financial details for your taxes.

What Are the Differences Between Accounting for Rental Properties and Accounting for Other Businesses?

While the principles of accounting are the same for all businesses, each one has its own set of peculiarities to consider. When it comes to rental property accounting, keep the following unique considerations in mind:

• Having sufficient rental income to pay your costs
• What are the advantages of efficiently managing your property finances?
• A separate account is required for each property.
• Which is preferable: cash or accrual accounting?

Is cash accounting or accrual accounting preferable?

When transactions are recorded, the major difference between cash and accrual accounting. Cash-basis accounting records transactions when money is received or paid. You should, for example, maintain note of when tenants pay their rent. In accrual-basis accounting, transactions are documented as they occur, regardless of whether money has changed hands.

The size of your organisation will influence which property accounting system you should choose. Cash-basis accounting may be a better way to keep track of the actual cash you have on hand if you rent out a few of your properties. Accrual accounting, on the other hand, may be preferred if you manage a large number of rental properties because it presents a more accurate long-term picture.

Should I have a separate bank account for my rental properties?

Yes. At all times, your rental property income should be kept separate from your personal funds. Fortunately, setting up a separate account for your rental properties is straightforward. At initially, having a single account for a few rental properties may suffice, but you'll be better off if you can get one for each to keep things organised.

Separate accounts for each property allow you to keep track of significant expenses incurred by renting out that property, track rental money received, and assess how the property fits into your portfolio. It will also significantly simplify bookkeeping and tax preparation.

Accounting Services for Rental Properties

Accounting and bookkeeping are two separate functions. While the two are intertwined, it's critical to understand the differences between bookkeeping and accounting in order to gain a better understanding of how your company's finances operate.

Accounting firms concentrate on the broad picture—analyzing your finances, identifying issues that need to be addressed or opportunities for improvement, and planning for the future—while bookkeeping is concerned with the day-to-day tracking and recording of money flowing in and out of your business. A bookkeeper and an accountant are usually the people that fill these roles.

What is the best way to keep track of rental property costs?

It's vital to keep track of your rental expenses because it allows you to ensure that they're profitable investments. Furthermore, certain expenses (which we'll describe momentarily) may be deducted from your taxable income, so you'll want to keep solid records to show the IRS.

The following rental property fees should be kept in mind:

• Maintenance and repairs
• Taxes to be paid
• Vendors' payments (landscaping, plumbing, etc.)
• public service announcement (including online listings, flyers, signage, etc.)
• Commissions are paid out (if you use a real estate agent)
• Costs of legal representation (having a lawyer assist you with establishing lease agreements and resolving tenant disputes if they develop is suggested)
• Insurance settlements
• A mortgage's and a loan's interest
• Arrangements (weather stripping, blinds, etc.)
• Services related to utilities (if you pay on behalf of tenants)