Bookkeeping for rental property owners

How should the books be set up?

Use a separate bank account for rentals, and track each property as a class, location or separate set of accounts, so income and expenses are reported by property. Owners with several properties often hold them in LLCs, which are usually disregarded for tax, so the properties still appear on the owner's Schedule E. See holding company LLC.

Record tenant details, lease dates and deposit amounts in a simple register alongside the books, so rent received can be checked against what is due each month.

How are common items treated?

How do you tell a repair from an improvement?

A repair keeps the property in its normal working condition, such as fixing a leak or repainting. An improvement makes it better, restores it substantially, or adapts it to a new use, such as replacing the roof or adding a room, and is depreciated. Safe harbors allow small items, and routine maintenance, to be deducted. See depreciation explained.

Keep invoices describing the work.

How is depreciation tracked?

Split the purchase price between land, which is not depreciated, and building. A residential building is depreciated over 27.5 years and a commercial one over 39. Each improvement starts its own schedule. Keep a fixed asset register for each property, since the total depreciation claimed reduces the property's basis and is partly taxed when you sell.

Furniture and appliances in a rental have shorter lives.

What is the monthly routine?

1. Record rent by property and tenant

   And follow up late payments.

2. Record expenses by property

   With receipts. See receipt requirements.

3. Reconcile property manager statements

   Gross rent, fees and expenses, not just the net payout.

4. Reconcile the bank

   And security deposit balances.

5. Log mileage and time

   For trips to the properties, and for passive loss rules.

What does a property-level result look like?

A rental house bought for $320,000, with $60,000 attributed to land, earns $30,000 of rent in a year. Expenses are $9,000 of mortgage interest, $3,600 of property tax, $1,800 of insurance, $2,400 of repairs and $3,000 of management fees, $19,800 in total. Depreciation on the $260,000 building over 27.5 years is about $9,455 a year, slightly less in the first year. Taxable rental income is only about $745, although the property produced far more cash before mortgage principal, which is why depreciation records matter.

What records matter when you sell?

Purchase closing statement, the land and building split, every improvement with its cost and date, depreciation claimed each year, and selling costs. Together they determine the gain and the part taxed as depreciation recapture. Keep them for as long as you own the property plus at least three years after the sale. See how long to keep business records.

Can rental losses offset other income?

Rental activities are generally passive. Owners who actively participate can deduct up to $25,000 of rental losses against other income, phased out between $100,000 and $150,000 of modified adjusted gross income. Real estate professionals who materially participate are not limited. See deducting business losses.

Do landlords issue 1099s?

If the rental activity is a trade or business, payments of $2,000 or more in 2026 to unincorporated contractors, such as handymen, are reported on Form 1099-NEC. Collect W-9s before paying. See Form 1099-NEC.

This guide is general information. It is not tax or legal advice for your situation.