Rental Property Accounting Basics That Every Landlord Should Know
When you invest in a rental property, your financial future becomes much more secure.
After all, 64 percent of Americans don't have enough money saved for retirement. Rental properties can provide passive income. It allows you to retire debt-free and with a more secure financial future.
If you ever want to make money with your rental property, you need to invest in accounting. Keep reading to learn about the foundational elements of rental property accounting.
Identifying Valid Business Expenses
In order to remain compliant with state and federal laws, understanding which rental property expenses are tax-deductible and logging business expenses is paramount.
It includes repairs and maintenance. Advertising, mortgage interest, insurance, and utilities that are specific to the rental property.
Developing an Accurate Balance Sheet
A balance sheet for the rental property should be used to show the financial position of the rental property. The balance sheet should be prepared at the end of each accounting period. Such as on a monthly or quarterly basis to ensure that it is based on the correct closing balances.
It should also include the initial buy price, estimated value at the start of the current period, etc. The balance sheet is used to help landlords identify their financial situation in regard to their rental properties.
Use Accounting Software and Reporting Tools
Bookkeeping for landlords can be a notoriously difficult task. The use of accounting software, property management software, and reporting tools is important for landlords. It makes them remain compliant with their tenant's finances.
Accounting software such as QuickBooks allows landlords to easily balance their accounts. It keeps leasing records and tracks revenue and expenses for each tenant.
Tenant Ledger, a reporting tool, allows landlords to access real-time statements and reports. It makes staying on top of payment schedules and financial obligations easier. You may also check the expert appfolio consulting page here if you want to make property management a breeze.
Effective Rental Ledger Maintenance
A rental ledger is a spreadsheet that keeps track of money in and out. From rent payments to maintenance fees, ledgers should be organized by date and by the tenant.
It includes information about the sum of tenancy fees, tenant deposits, and withdrawals, as well as any other fees. In addition to tracking expenses, landlords should also be sure to document:
- late payments
- other penalties
When it comes time to report income and expenses to the IRS, a rental ledger can provide landlords with the necessary facts and figures to prevent overpayment or underpayment of taxes.
Check Out This Rental Property Accounting Guide
Knowing the basics of rental property accounting can maximize your income as a landlord. Knowing expenses and boosting your revenue stream can make rental income more profitable.
Track rental payments, deductions, and expenses. It helps to detail your rental property tax deductions. You will have an understanding of the taxes associated with rental income.
Put these rental property accounting basics to work and start increasing your income today!
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