8 Top Landlord Bookkeeping Tips for Beginners - Basic Property Management

As a landlord, you have a lot of responsibilities. One of the most important is keeping track of your finances. If you’re new to landlord bookkeeping, don’t worry – we’ve got you covered. Here are eight tips that will help you get started.

1. Understand the tax implications of owning rental property

If you own rental property, there are some important things to keep in mind when it comes to taxes. First of all, there are some great tax benefits that come with owning rental property. For example, you can deduct expenses like repairs and maintenance, property taxes, and mortgage interest from your rental income. This can help to reduce your overall tax liability.

Additionally, it’s important to keep good records throughout the year. This will make it much easier to prepare your Schedule E (the tax form used for rental properties) at the end of the year. Finally, remember that rental income is considered taxable income. So be sure to set aside money throughout the year to pay your taxes.

By following these tips, you can maximize the tax benefits of owning rental property and minimize your tax liability.

2. Set up bank accounts for your rental property business

Most landlords know that it’s important to set up a separate bank account for their rental property business. Doing so helps to keep personal expenses separate from business expenses and makes it easier to track rental income and expenses come tax time. But did you know that comingling – commingling, mixing personal funds with business funds – is actually a bad bookkeeping practice?

Basically, when you comingle, you make it difficult to track what money is being spent on what. It can also lead to problems come tax time, because the IRS may question whether or not certain expenses are truly business-related. So, if you’re a landlord, be sure to set up a separate business bank account for your rental properties – it’ll save you headache down the road!

3. Know the difference between operating expenses and capital repairs

It’s important to understand the difference in rental property accounting between operating expenses and capital repairs in order to stay organized and compliant come tax time.

Operating expenses are the ongoing costs associated with running a rental property, such as monthly mortgage payments, insurance premiums, property taxes, and utility bills. These expenses are deducted as they are incurred.

Capital repairs, on the other hand, are major improvements or replacements that increase the value of the property or extend its useful life. Examples of capital repairs include replacing a roof, upgrading appliances, or installing new windows. These repairs are deductible over a period of 27.5 years for residential rental property and 39 years for commercial property, through what’s called “depreciation.”

4. Keep accurate records of all income and expenses

It may seem like a lot of work to keep track of your rental income and expenses, but it is actually a very important part of landlord bookkeeping.

First of all, it will help you to see how much money you are making (or losing) each month. This information can be used to make decisions about things like rent prices and whether or not to make any changes to the property. Additionally, accurate records can be helpful if you ever have any legal problems with your tenants. Finally, keeping track of your income and expenses will also make it easier to file your taxes at the end of the year.

There are a few different ways that landlords can keep track of their income and expenses. Some people prefer to use a simple spreadsheet, while others use special landlord bookkeeping software. Whichever system you choose, just make sure that you are consistent in updating it each month.

5. Set aside money each month to cover repairs and maintenance costs

As a landlord, it’s important to set aside money each month to cover repairs and maintenance costs. The best way to do this is by setting up a capital reserve account.

This account should be separate from your operating account and you should only use it for major repairs and improvements. By setting up a capital reserve account, you’ll be able to keep your rental properties in good condition and avoid costly repairs in the future.

Here are some tips for setting up and maintaining your capital reserve account:

  • Make sure to deposits funds into your account on a regular basis. You can do this monthly or quarterly, depending on your cash flow.

  • Keep track of all expenses associated with your account, including repairs, improvements, and administrative costs. This will help you stay organized and on budget.

  • Review your account regularly to ensure that you have enough funds set aside to cover anticipated future expenses. If necessary, make adjustments to your deposits or budget so that you can build up your reserves over time.

By following these simple tips, you can make sure that your rental properties are well-maintained and that you have the funds available to cover unexpected repairs and maintenance costs.

Photo by Steven Ungermann on Unsplash

6. Be prepared for vacancy periods by having reserve funds available

Vacancy periods are an inevitable part of being a landlord. Even if you do your best to screen tenants and keep your properties in good condition, there will always be a chance that a tenant will move out unexpectedly or that you’ll have difficulty finding a new tenant. That’s why it’s so important for landlords to be prepared for vacancy periods by having reserve funds available.

Some landlords set up a separate savings account for their reserve fund, which they only use in case of vacancies or other unexpected expenses. This can help to ensure that the money is available when you need it and that you don’t end up dipping into your personal savings or taking out a loan. Other landlords simply include a line item for vacancy reserves in their monthly bookkeeping. Either way, making sure you have funds set aside specifically for vacancies will help you weather any storm.

7. Keep accurate records of all correspondence with tenants, including phone calls, emails, and letters

As a landlord, it’s important to keep accurate records of all correspondence with tenants, including phone calls, emails, and letters. This benefits landlord bookkeeping in a number of ways:

  • Provides a paper trail in case there is ever a dispute between landlord and tenant.

  • Helps to ensure that landlord-tenant communications are clear and concise.

  • Can help landlords keep track of maintenance and repair requests, rent payments, and other important information.

By taking the time to maintain accurate records, landlords can save themselves a lot of headaches down the road.

8. Hire a reliable property management company to handle the day-to-day tasks of being a landlord if you don’t have the time or inclination to do so yourself

Write about why a landlord may wish to hire a reliable property management company to handle bookkeeping and the day-to-day tasks of being a landlord if they don’t have the time or inclination to do so yourself and the benefits of doing so.

Many landlords choose to hire a property management company to handle the day-to-day tasks of being a landlord. This can be a good option for landlords who don’t have the time or inclination to do so themselves. There are many benefits to hiring a property management company, including:

  • Peace of mind that comes with knowing your property is in good hands.

  • Ability to focus on other aspects of your life, such as your career or family.

  • Assurance that your property will be well-maintained and that you won’t have to deal with difficult tenants.

If you’re considering hiring a property management company, be sure to do your research and find a reputable, reliable company that will meet your needs.

Closing thoughts

Bookkeeping is important for landlords because it helps them stay organized and track their expenses. By tracking their expenses, they can make sure that they are not spending more money than they are bringing in. Additionally, landlord bookkeeping can help landlords keep tabs on their properties and tenants. By having this information readily available, landlords can make informed decisions about their rental business.

Blog post by J. Scott Digital freelance copywriting services, featured photo by Towfiqu barbhuiya on Unsplash

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