Landlord Bookkeeping Guide: How to Track Rental Income and Expenses

Good bookkeeping is the foundation of profitable rental property ownership. Yet nearly 60% of small landlords don't maintain proper financial records, leading to missed tax deductions, poor investment decisions, and potential IRS problems.

This comprehensive guide teaches you how to set up and maintain a professional bookkeeping system for your rental properties—even if you have no accounting background. We'll cover everything from basic record-keeping to advanced reporting and software recommendations.

Why Proper Bookkeeping Matters

Financial Benefits

Tax Savings: The average landlord with proper records claims $3,000-$5,000 more in deductions than those with poor record-keeping.

Better Decisions: Accurate books help you:

• Know your true profit margin
• Identify problem properties
• Make informed rent increase decisions
• Plan for capital improvements
• Evaluate whether to sell or hold

Audit Protection: The IRS audits rental property owners at higher rates than average taxpayers. Proper documentation protects you.

Professional Operations: Good books enable you to:

• Get better financing terms
• Attract investors or partners
• Sell properties for maximum value
• Qualify for more properties

Legal Protection

Proper records help in:

• Eviction proceedings (proof of unpaid rent)
• Security deposit disputes (documented damages)
• Insurance claims (proof of value)
• Liability lawsuits (evidence of proper maintenance)

Setting Up Your Bookkeeping System

Step 1: Separate Business and Personal Finances

Absolutely Essential: Open separate accounts for your rental business.

Minimum Setup:

• One business checking account
• One business savings account (for reserves)
• One business credit card

Multi-Property Setup:

• One operating account for all properties
• Individual savings accounts per property (reserves)
• One or two business credit cards
• Optional: Separate LLC accounts per property for liability protection

Benefits:

• Clear separation for tax purposes
• Easy expense tracking
• Professional appearance
• Simpler accounting

Cost: Most business accounts: $10-$30/month (many waive fees with minimum balances)

Step 2: Choose Your Accounting Method

Cash Method (Most Common for Small Landlords):

• Record income when received
• Record expenses when paid
• Simpler to understand and maintain
• Allowed for most landlords

Accrual Method (Required for Some):

• Record income when earned (even if not received)
• Record expenses when incurred (even if not paid)
• More accurate picture of financial health
• Required if: corporate structure, gross receipts over $26M, or holding inventory

Recommendation: Use cash method unless you have a specific reason for accrual.

Step 3: Set Up Your Chart of Accounts

A chart of accounts is the framework for categorizing all transactions.

Income Accounts:

• 4000: Rental Income
• 4010: Laundry Income
• 4020: Parking Income
• 4030: Pet Fees
• 4040: Late Fees
• 4050: Other Income

Expense Accounts:

• 5000: Advertising
• 5100: Auto and Travel
• 5200: Cleaning and Maintenance
• 5300: Commissions ([Property Management](/blog/property-management-complete-guide))
• 5400: Insurance
• 5500: Legal and Professional Fees
• 5600: Management Fees
• 5700: Mortgage Interest
• 5800: Other Interest
• 5900: Repairs
• 6000: Supplies
• 6100: Taxes (Property)
• 6200: Utilities
• 6300: Depreciation
• 6400: HOA Fees
• 6500: Pest Control
• 6600: Landscaping
• 6700: Snow Removal
• 6800: Appliances
• 6900: [Tenant Screening](/blog/best-property-management-software-2026)
• 7000: Office Expenses
• 7100: Bank Fees

Customize: Add or remove categories based on your specific needs.

Step 4: Choose Your Bookkeeping Software

Option 1: Spreadsheet (Free - Simple)

Best for: 1-2 properties, simple finances, tight budget

Pros:

• Free
• Full control
• No learning curve if you know Excel

Cons:

• Manual entry
• No automation
• Easy to make errors
• Limited reporting
• Time-consuming

Template Needs:

• Income tracker
• Expense tracker
• Mileage log
• Property summary
• Annual tax preparation worksheet

Option 2: QuickBooks Online ($30-$200/month)

Best for: 3+ properties, serious landlords, growing portfolios

Pros:

• Industry standard
• Robust features
• Bank integration
• Good reporting
• Tax software integration
• CPA familiarity

Cons:

• Steeper learning curve
• Monthly cost
• Can be overkill for very small landlords

Plans:

• Simple Start ($30/month): Basic income/expense tracking
• Essentials ($60/month): Bill management, time tracking
• Plus ($90/month): Inventory, project tracking
• Advanced ($200/month): Advanced analytics, custom access

Recommendation: Plus plan for most landlords with 3+ properties

Option 3: Stessa (Free - Rental-Specific)

Best for: Landlords wanting free, automated, rental-specific software

Pros:

• Completely free
• Built specifically for rentals
• Automatic bank feeds
• Property-level reporting
• Mobile app
• Tax-ready reports

Cons:

• Less customization than QuickBooks
• Newer company (less established)
• Limited integration with other tools

Option 4: Baselane ($0-$50/month)

Best for: Landlords wanting banking + bookkeeping combined

Pros:

• Free banking integrated with bookkeeping
• Rental-specific features
• Automated expense categorization
• Easy rent collection

Cons:

• Requires using their banking
• Limited compared to QuickBooks for complex needs

Option 5: Buildium, AppFolio, TenantCloud ($50-$500/month)

Best for: 5+ units, professional management, full-service needs

Pros:

• Complete property management platforms
• Integrated accounting
• Tenant portals
• Lease management
• Maintenance tracking

Cons:

• Expensive
• Overkill for small landlords
• Steeper learning curve

Our Recommendation by Portfolio Size:

• 1-2 properties: Stessa or Baselane (free)
• 3-10 properties: QuickBooks Online Plus or Stessa
• 10+ properties: QuickBooks + property management software, or Buildium/AppFolio

Essential Records to Maintain

Income Records

What to Track:

• Date payment received
• Amount
• Tenant name
• Property address
• Payment method
• Check number or transaction ID

Documents to Keep:

• Rent receipts or online payment confirmations
• Lease agreements
• Rent roll (list of all tenants and amounts)

Retention: 7 years after tax filing

Expense Records

What to Track:

• Date of expense
• Amount
• Vendor/payee
• Property address (if applicable)
• Category
• Description/purpose

Documents to Keep:

• Receipts and invoices
• Credit card statements
• Bank statements
• Canceled checks (or images)
• Contracts for services

Retention: 7 years after tax filing

Capital Improvements

What to Track:

• Date of improvement
• Total cost
• Vendor
• Property address
• Description of work
• Before/after photos

Documents to Keep:

• Detailed invoices
• Contracts
• Permits
• Lien waivers
• Photos

Retention: Permanently (needed for depreciation calculations and capital gains at sale)

Property Purchase and Sale Documents

What to Keep:

• Purchase agreement
• Closing/settlement statement (HUD-1 or CD)
• [Title insurance](/blog/title-search-explained)
• Surveys and appraisals
• Inspection reports
• Loan documents

Retention: Permanently

Lease and Tenant Records

What to Keep:

• Signed leases and addendums
• Rental applications and screening reports
• Move-in/move-out inspection reports
• Security deposit records
• Communication logs
• Notice letters
• Eviction paperwork

Retention: 7 years after tenant moves out

Mileage and Travel Logs

What to Track:

• Date
• Starting location
• Destination
• Purpose of trip
• Miles driven
• Odometer readings (beginning of year, end of year)

Format: Use an app (MileIQ, TripLog, Everlance) or detailed written log

Retention: 7 years

Depreciation Records

What to Track:

• Original cost basis
• Date placed in service
• Depreciation method and useful life
• Annual depreciation amounts
• Accumulated depreciation

Documents:

• Form 4562 (first year and when method changes)
• Depreciation schedules
• Basis calculations

Retention: Permanently (needed until property sold and capital gains calculated)

Monthly Bookkeeping Routine

Week 1: Enter Transactions

Tasks:

1. Download bank and credit card transactions
2. Categorize all expenses
3. Record all rental income
4. Match transactions to receipts
5. Upload/scan any paper receipts

Time Required: 1-3 hours depending on volume

Tools: Bank feeds, receipt scanning apps (Hubdoc, Dext)

Week 2: Reconciliation

Tasks:

1. Reconcile bank accounts (match bank statement to your records)
2. Reconcile credit card accounts
3. Review uncategorized transactions
4. Fix any errors or discrepancies

Time Required: 30-60 minutes

Why It Matters: Catches errors, missing transactions, fraudulent charges

Week 3: Review and Analyze

Tasks:

1. Run profit & loss statement
2. Review expense categories for anomalies
3. Check for missing rent payments
4. Review accounts receivable (unpaid rent)
5. Identify upcoming bills

Time Required: 30-45 minutes

Key Metrics to Track:

• Monthly income vs. budget
• Operating expense ratio
• [Net operating income](/blog/net-operating-income-guide) per property
• Delinquent rent

Week 4: Planning and Admin

Tasks:

1. Pay bills due
2. Follow up on late rent
3. Schedule needed maintenance
4. Update budget projections
5. Review savings/reserve balances

Time Required: 1-2 hours

Total Monthly Time: 3-7 hours

Pro Tip: Set a recurring calendar event for bookkeeping tasks. Consistency prevents backlog.

Essential Financial Reports

1. Profit & Loss Statement (Income Statement)

Shows: Income and expenses over a period (monthly, quarterly, annual)

Key Components:

• Total rental income
• Total operating expenses (by category)
• Net operating income (NOI)
• Mortgage interest (separately)
• Depreciation
• Net profit/loss

Use For:

• Tax preparation
• Performance evaluation
• Lender applications
• Investment decisions

Frequency: Monthly review, annual for taxes

2. Balance Sheet

Shows: Snapshot of what you own (assets) and owe (liabilities) at a specific date

Key Components:

• Assets: Property value, cash, security deposits held, accounts receivable
• Liabilities: Mortgage balances, security deposits owed, accounts payable
• Equity: Net worth (assets minus liabilities)

Use For:

• Net worth tracking
• Loan applications
• Partnership accounting
• Sale planning

Frequency: Quarterly or annual review

3. Cash Flow Statement

Shows: Actual cash in and out (different from profit due to depreciation, loan principal, etc.)

Key Components:

• Operating cash flow (rent collected minus expenses paid)
• Investing cash flow (capital improvements, property purchases)
• Financing cash flow (loan proceeds, principal payments)

Use For:

• Understanding actual cash position
• Planning for capital needs
• Evaluating sustainability

Frequency: Monthly

4. Rent Roll

Shows: Current tenant status for each unit

Key Components:

• Property address/unit
• Tenant name
• Lease start/end dates
• Monthly rent amount
• Security deposit held
• Payment status

Use For:

• Quick occupancy overview
• Rent collection tracking
• Lease renewal planning
• Property sale documentation

Frequency: Update monthly, review weekly

5. Property Performance Report

Shows: Individual property profitability

Key Components:

• Gross rental income
• Vacancy loss
• Operating expenses
• Net operating income
• Debt service
• Cash flow
• Cash-on-cash return
• Cap rate

Use For:

• Comparing properties
• Identifying underperformers
• Disposition decisions
• Portfolio optimization

Frequency: Quarterly

Key Performance Metrics to Track

Operating Expense Ratio (OER)

Formula: Operating Expenses ÷ Gross Rental Income

Benchmark: 35-45% for well-managed properties

Example:

• Gross rent: $30,000/year
• Operating expenses: $12,000/year
• OER: 40% (good)

Lower is Better: Indicates efficient operations

Net Operating Income (NOI)

Formula: Gross Rental Income - Operating Expenses

Example:

• Gross rent: $30,000
• Operating expenses: $12,000
• NOI: $18,000

Use: Valuation, comparing properties, measuring performance

Cash-on-Cash Return

Formula: Annual Cash Flow ÷ Total Cash Invested

Example:

• Annual cash flow: $6,000
• Down payment + closing costs: $60,000
• Cash-on-cash return: 10%

Benchmark: 8-12% is strong for rental properties

[Capitalization Rate](/blog/calculating-cap-rate-guide) (Cap Rate)

Formula: NOI ÷ Property Value

Example:

• NOI: $18,000
• Property value: $300,000
• Cap rate: 6%

Use: Comparing investment opportunities, estimating value

[Debt Service Coverage Ratio](/blog/best-dscr-lenders-2026) (DSCR)

Formula: NOI ÷ Annual Debt Service

Example:

• NOI: $18,000
• Annual mortgage payments: $15,000
• DSCR: 1.2

Benchmark: Lenders typically want 1.25+

Common Bookkeeping Mistakes

1. Mixing Personal and Business Expenses

Problem: Using rental income to pay personal bills or vice versa

Solution: Maintain completely separate accounts. If you need to take money out, record it as an owner draw, not an expense.

2. Poor Categorization

Problem: Lumping everything into "Other" or miscategorizing repairs as improvements

Solution: Use consistent categories. When in doubt, create a new category rather than using "Other."

3. Missing Receipts

Problem: Expenses without documentation can't be deducted

Solution:

• Keep a receipt box in your car
• Use receipt scanning apps immediately
• Email receipts to yourself
• Keep digital backups

4. Not Reconciling Accounts

Problem: Errors and missing transactions go unnoticed

Solution: Reconcile all accounts monthly. This catches:

• Duplicate entries
• Missing transactions
• Bank errors
• Fraudulent charges

5. Irregular Bookkeeping

Problem: Doing 6 months at once means missing details, lost receipts, major time investment

Solution: Set a weekly schedule. Doing it fresh while you remember context is much easier.

6. Ignoring Mileage

Problem: Missing thousands in deductions because you don't track mileage

Solution: Use an automatic mileage tracking app. Even a 90% automated solution is better than nothing.

7. Not Tracking Per-Property Performance

Problem: Can't identify problem properties or make smart portfolio decisions

Solution: Tag all transactions with property address. Run reports by property.

8. Commingling Security Deposits

Problem: Some states require security deposits in separate accounts

Solution: Know your state law. At minimum, track security deposits carefully in your accounting system.

Year-End Bookkeeping Tasks

December Tasks

Review and Clean Up:

• Categorize all transactions
• Reconcile all accounts through December 31
• Record any year-end bills received
• Make final estimated tax payment (if applicable)

Strategic Actions:

• Prepay January expenses in December if beneficial (property taxes, insurance)
• Complete planned repairs/improvements before year-end
• Consider equipment purchases for Section 179 deduction

January Tasks

Tax Preparation:

• Run full-year profit & loss by property
• Run full-year expense detail report
• Calculate total mileage for the year
• Gather all 1099s and 1098s received
• Prepare depreciation schedules
• Compile documents for CPA

Issue Forms:

• 1099-NEC for contractors paid $600+ (due January 31)
• 1099-MISC for other payments if applicable

Annual Planning:

• Review prior year performance
• Set goals for new year
• Create budget for each property
• Plan capital improvements
• Assess rent rates

February-March Tasks

Tax Filing:

• Meet with CPA or prepare returns
• File extensions if needed
• Pay any tax owed by April 15

Portfolio Review:

• Analyze which properties performed well/poorly
• Consider disposition of underperformers
• Plan acquisition strategy
• Update insurance coverage

Bookkeeping for Different Business Structures

Sole Proprietor

Tax Form: Schedule E (Form 1040)

Bookkeeping: Simplest—just track income and expenses per property

Separation: Not legally required to separate but strongly recommended

LLC (Single-Member)

Tax Form: Schedule E (disregarded entity) or Form 1065 (if elected)

Bookkeeping: Same as sole proprietor but better to maintain completely separate accounts for liability protection

Considerations: Some states require separate bank accounts

LLC (Multi-Member)

Tax Form: Form 1065 (Partnership)

Bookkeeping: Must track member capital accounts, distributions, and allocations

Complexity: Higher—strongly recommend professional help

S Corporation or C Corporation

Tax Form: Form 1120-S or 1120

Bookkeeping: Must maintain corporate formalities, payroll, shareholder basis tracking

Complexity: Highest—definitely need professional accounting help

Hiring Help

When to DIY

Good fit if:

• 1-3 properties
• Simple finances
• You're organized and consistent
• You enjoy/don't mind bookkeeping

Time Required: 3-7 hours monthly

Cost: Software only ($0-$90/month)

When to Hire a Bookkeeper

Good fit if:

• 4+ properties
• Your time is better spent elsewhere
• You fall behind regularly
• You dislike bookkeeping

Services: Monthly transaction entry, reconciliation, reports

Cost: $200-$600/month depending on volume

ROI: If your time is worth $50/hour and they save you 5 hours/month, breakeven is $250/month

When to Hire a CPA

Everyone should have a CPA for annual tax preparation

Consider ongoing CPA help if:

• Complex entity structure (partnerships, S-corps)
• Large portfolio (10+ properties)
• Planning major transactions (1031 exchange, cost segregation)
• Facing audit

Cost: Tax prep: $500-$2,000/year; ongoing advisory: $200-$500/hour

Frequently Asked Questions

What's the difference between bookkeeping and accounting?

Bookkeeping is the day-to-day recording of transactions. Accounting includes bookkeeping plus analysis, financial reporting, tax planning, and strategic advice. Most landlords need good bookkeeping; some need accounting services.

Can I do my own bookkeeping even if I'm not good with numbers?

Yes. Modern software makes it much easier. If you can categorize expenses and run reports, you can handle basic bookkeeping. The key is consistency and using the right tools.

How long should I keep rental property records?

Keep tax returns and supporting documents for at least 7 years. Keep property purchase/improvement documents permanently (needed for depreciation and capital gains calculations). When in doubt, keep it.

Should I use cash or accrual accounting?

Most small landlords should use cash accounting—it's simpler and allowed by the IRS for most rental businesses. Accrual is required only if you have a corporation (other than S-corp), gross receipts over $26M, or inventory.

Do I need separate bank accounts for each property?

Not required, but highly recommended if you have multiple properties. At minimum, have one account for all rentals separate from personal. For better tracking, consider separate accounts per property or per LLC.

How do I handle security deposits in my books?

Security deposits are not income when received. Record them as a liability (money you owe back to the tenant). If you keep part or all for damages or unpaid rent, move that amount to income at that time.

What if I didn't keep good records in past years?

Start fresh now with a proper system going forward. For past years, reconstruct what you can from bank statements and credit card records. For future years, you'll be prepared. The IRS is more lenient with honest mistakes than intentional disregard.

Should I track time spent on rental activities?

Yes, especially if you're trying to qualify as a real estate professional (750+ hours). Even if not, tracking time helps you understand whether self-management makes sense versus hiring help.

Take Control of Your Rental Finances

Proper bookkeeping isn't just about taxes—it's about truly understanding your investment performance and making smart decisions. The landlords who succeed long-term are those who know their numbers.

Key Takeaways:

1. Separate business and personal finances completely
2. Choose appropriate software for your portfolio size
3. Maintain consistent monthly routines
4. Keep detailed records for at least 7 years
5. Track property-level performance, not just totals
6. Get professional help when it makes sense

Streamline Your Rental Bookkeeping

HonestCasa provides landlords with purpose-built tools for tracking income, categorizing expenses, generating tax-ready reports, and monitoring property performance—all in one platform designed specifically for rental property owners.

Get started with HonestCasa and simplify your rental bookkeeping while ensuring you never miss a deduction or lose track of important financial data.

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This guide provides general bookkeeping guidance for rental property owners. Always consult with a qualified accountant or CPA for advice specific to your situation.

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