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Expense Tracking for Rental Properties 101

Updated: Nov 23, 2022

Owning rental properties can be an excellent means of earning extra money. According to My Smart Move, rents are on the rise across the United States, making this a great time to get into the market. When managing rental properties, it's critical to track expenses. This offers various benefits, from allowing you to calculate your return on investment to helping you lower your tax bill.

Tverdov Housing brings you more information on expense tracking for rental properties.

Understand the value of tracking expenses

Expense tracking will take some time and effort. According Westrom Group you have to document all your expenses. Unfortunately, tasks like scanning receipts can be time-consuming. However, you can save a lot of money if you put in the effort. How? You have to declare all your rental income to the Internal Revenue Service. However, you can decrease your taxable income with deductions—which can add up significantly! Property maintenance can cost as much as 4 percent of a property's total value, according to Millionacres, so deducting these expenses can help you save.

Tally up your expenses

Now that you understand the importance of expense tracking, it's time to get to work: tallying up all those costs. Sit down and make a list of all the various types of expenses your rental property incurs, from landscaping to maintenance fees and emergency repairs. Lending Home provides a list of other related expenses to consider, including periods of vacancy, marketing costs, fees for tenant screenings, and utilities.

Keep your receipts and accurate records

Simply writing down your expenses isn't enough. You have to keep copies of all your receipts and record key details. For example, every expense should have a clear description of what it is, the date, and a cost breakdown. You also need to provide the name of the contractor or supplier and their contact information. In case you are ever audited, the IRS may want to verify these details.

Figure out which expenses are tax deductible

When tallying up your expenses, categorize them into those that are tax deductible and those that aren't. This will also make it easier to ensure that nothing slips through the cracks. Mynd Management offers a list of lesser-known tax deductions that landlords often overlook. They include homeowners association dues, legal fees, and energy-efficient upgrades. Consult a tax advisor to make sure your deductions are all valid. Keep in mind that if your rental property business is registered as an LLC, there isn’t a specific federal tax return you’ll use and that LLC rules will determine how you file.

Implement an accounting system for expense tracking

A comprehensive accounting system will make it easier and faster to track expenses, saving you time. You want to know exactly where your money is going, have a robust overview of your receipts, and be able to easily sort expenses into tax categories. You may also use a service like Plaid for bank account authentication, which will make it easier to accept rental payments and other income. Plus, you can connect this tool to your PayPal or bank accounts.

Establish a backup storage system for receipts, records, and financial reports

Set up a backup system for saving receipts, financial reports, and other documentation related to expenses. Myob emphasizes the benefits of going digital to back up your documentation. Modern web-based tools make it easy to upload, access, search, and export files. You can sort documentation based on set periods, like the financial quarter or year. This can also simplify tax paperwork.

Expense tracking will add some administrative burden to your rental property management. However, it's an essential task and will ultimately benefit you in various ways, from saving on taxes to finding ways to cut costs. Refer to the tips above to upgrade your expense tracking.

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