Rental Property Accounting Guide: Bookkeeping for Landlords in 2026

Most landlords hate bookkeeping. It's not why you got into real estate. But sloppy accounting costs you money — through missed deductions, audit risk, and bad investment decisions based on numbers you can't trust.

This guide covers everything you need to track, the tools that make it manageable, and the tax strategies that keep more money in your pocket.

Why Rental Property Accounting Is Different

Rental property bookkeeping isn't like running a small business, and it's not like personal finance. It sits somewhere in between, with its own rules:

• Each property is tracked separately. The IRS wants income and expenses reported per property on Schedule E. Mixing them together creates problems at tax time.
• Depreciation is mandatory. You must depreciate residential rental property over 27.5 years, whether you want to or not. This "paper loss" often offsets your rental income for tax purposes.
• Cash vs. accrual matters. Most landlords use cash basis accounting (record income when received, expenses when paid). It's simpler and what the IRS expects from small landlords.
• Capital improvements vs. repairs. A new roof is a capital improvement (depreciated over time). Fixing a leaky faucet is a repair (deducted immediately). Getting this wrong can trigger an audit.

What You Need to Track

Income Categories

Rental income. Monthly rent payments, obviously. But also track:

• Late fees
• Pet fees or pet rent
• Parking fees
• Laundry income
• Application fees
• Lease break fees
• Security deposit forfeiture (when you keep part or all of a deposit)

Security deposits themselves are not income when received — only when you keep them. This is a common mistake.

Expense Categories

The IRS Schedule E lists these standard categories. Track every dollar:

1. Advertising — Listing fees, yard signs, online advertising
2. Auto and travel — Mileage to/from properties (67 cents/mile in 2026), parking, tolls
3. Cleaning and maintenance — Turnover cleaning, routine maintenance, landscaping
4. Commissions — [[Property management](/blog/property-management-complete-guide) fees](/blog/property-management-fees-guide) (typically 8–10% of rent)
5. Insurance — [Landlord insurance](/blog/landlord-insurance-guide), umbrella policies, [flood insurance](/blog/hurricane-insurance-guide)
6. Legal and professional fees — Attorney, CPA, eviction costs
7. Management fees — If you hire a property manager
8. Mortgage interest — Interest portion only (not principal)
9. Other interest — HELOC interest, credit line interest used for the property
10. Repairs — Anything that restores the property to its original condition
11. Supplies — Cleaning supplies, tools, locks, smoke detectors
12. Taxes — Property taxes, any local rental taxes or fees
13. Utilities — If you pay any utilities (water, trash, electric, gas)
14. Depreciation — Calculated on the building value (not land) over 27.5 years

The Mileage Trap

Mileage deductions add up fast but require documentation. The IRS wants:

• Date of trip
• Destination
• Business purpose
• Miles driven

Use an app like MileIQ ($5.99/month) or Everlance (free tier available) to track automatically. A landlord visiting 5 properties weekly can easily accumulate 3,000–5,000 miles per year, worth $2,000–$3,350 in deductions.

Choosing Your Accounting Method

Option 1: Spreadsheets (Free)

Best for: 1–3 properties, basic tracking needs

A well-built spreadsheet works for small portfolios. Create one sheet per property with columns for:

• Date
• Category (matching Schedule E categories)
• Description
• Amount
• Receipt link/reference

Pros: Free, fully customizable, no learning curve Cons: Manual data entry, easy to make errors, no bank integration, painful at scale

Option 2: Stessa (Free–$20/month)

Best for: 1–50 properties, landlords who want automation without complexity

Stessa is purpose-built for rental property accounting. Link your bank accounts, and it automatically imports and categorizes transactions by property. At tax time, export a Schedule E-ready report.

Key features:

• Automatic transaction import and categorization
• Per-property income and expense tracking
• Dashboard showing cash flow, NOI, and cap rate by property
• Document storage for leases, receipts, and tax forms
• Free tier handles unlimited properties

Pros: Free, automated, designed for landlords Cons: Categorization requires occasional manual correction (about 85–90% accuracy), limited customization

Option 3: QuickBooks Online ($35–$90/month)

Best for: 10+ properties, landlords who want full accounting control, those with an accountant

QuickBooks is the standard small business accounting software. It's not designed for rental properties, but with proper setup (using classes or locations for each property), it handles the job well.

Key features:

• Full double-entry accounting
• Bank feeds with auto-categorization
• Invoice and rent tracking
• Integrates with most [property management software](/blog/best-property-management-software-2026)
• Your CPA probably already uses it

Pros: Industry standard, powerful reporting, CPA-friendly Cons: Requires setup knowledge, monthly cost, overkill for small portfolios

Setup tip: Create each property as a "Class" in QuickBooks. This lets you run profit and loss reports by property, which maps directly to Schedule E.

Option 4: REI Hub ($15–$35/month)

Best for: Landlords who want QuickBooks-level accounting without the complexity

REI Hub is a newer option designed specifically for rental property investors. It combines the automation of Stessa with the accounting rigor of QuickBooks.

Key features:

• Schedule E-aligned chart of accounts (pre-built)
• Automatic bank feed import
• Per-property financial statements
• Capital expense tracking and depreciation schedules
• 1099 generation for contractors

Pros: Purpose-built for real estate, easier than QuickBooks, proper accounting structure Cons: Smaller user base, fewer integrations than QuickBooks

Comparison Summary

Setting Up Your Books: Step by Step

Step 1: Separate Your Accounts

Open a dedicated bank account for your rental properties. Ideally, one per property or one per LLC. At minimum, keep one account for all rental activity, separate from personal funds.

This is non-negotiable for LLC liability protection. Commingling personal and business funds is the fastest way to "pierce the corporate veil," making your LLC useless in a lawsuit.

Recommended banks for landlords:

• Relay (free business banking, lets you create sub-accounts per property)
• Baselane (built for landlords, includes rent collection and bookkeeping)
• Mercury (free business banking with good API integrations)

Step 2: Set Up Your Chart of Accounts

Your chart of accounts should mirror Schedule E categories. Here's a starter template:

Income:

• 4000 – Rental Income
• 4010 – Late Fees
• 4020 – Pet Rent
• 4030 – Other Income

Expenses:

• 5000 – Advertising
• 5010 – Auto & Travel
• 5020 – Cleaning & Maintenance
• 5030 – Insurance
• 5040 – Legal & Professional
• 5050 – Management Fees
• 5060 – Mortgage Interest
• 5070 – Repairs
• 5080 – Supplies
• 5090 – Property Taxes
• 5100 – Utilities
• 5110 – HOA Fees
• 5120 – Other Expenses

Capital:

• 6000 – Capital Improvements (depreciated)
• 6010 – Appliances
• 6020 – Roof/Structure
• 6030 – HVAC

Step 3: Automate What You Can

Link your bank accounts to your chosen software. Set up rules for recurring transactions:

• Mortgage payment → Auto-split between interest (expense) and principal (not an expense)
• Insurance auto-pay → Categorize to Insurance
• Property tax auto-pay → Categorize to Property Taxes

Review auto-categorized transactions weekly. Catching errors monthly is much easier than sorting through a year of miscategorized transactions in March.

Step 4: Document Everything

For every expense, keep:

• Receipt or invoice
• Date
• Amount
• Business purpose

Store receipts digitally. Take a photo with your phone and upload to your accounting software, Google Drive, or Dropbox. Paper receipts fade within 2–3 years, and the IRS can audit you up to 3 years back (6 years in some cases).

Receipt apps: Dext (formerly Receipt Bank) at $24/month or the free scanning feature in Stessa or QuickBooks.

Key Tax Strategies for Landlords

Depreciation: Your Biggest Tax Benefit

Residential rental property is depreciated over 27.5 years using the straight-line method. Only the building value is depreciated — not the land.

Example: You buy a rental for $300,000. The land is assessed at $60,000, so the building value is $240,000. Annual depreciation: $240,000 ÷ 27.5 = $8,727 per year.

That's $8,727 in "expenses" you can deduct without spending a single dollar. On a property that cash flows $500/month ($6,000/year), depreciation alone creates a paper loss — meaning you may owe zero income tax on the rental income.

Cost Segregation: Accelerated Depreciation

Cost segregation studies identify components of your property that can be depreciated over 5, 7, or 15 years instead of 27.5. Things like appliances (5 years), carpeting (5 years), landscaping (15 years), and parking lots (15 years).

A cost segregation study costs $3,000–$7,000 but can front-load $50,000–$150,000 in depreciation deductions on a $500K+ property. Generally worth it for properties valued at $300K+.

In 2026, [bonus depreciation](/blog/depreciation-rental-property-guide) allows 40% first-year deduction on qualifying assets identified through cost segregation (down from 60% in 2025 and 80% in 2024, per the phase-down schedule from the Tax Cuts and Jobs Act).

Repairs vs. Capital Improvements

This distinction matters every time you spend money on a property:

Repairs (deduct immediately):

• Fixing a leaky faucet
• Patching drywall
• Replacing a broken window
• Unclogging drains
• Repainting a room

Capital improvements (depreciate over time):

• New roof
• Adding a room or deck
• New HVAC system
• Kitchen remodel
• New flooring throughout

The safe harbor rule: Expenses under $2,500 per item can be deducted immediately as repairs under the de minimis safe harbor election, regardless of whether they're technically improvements. This is elected annually on your tax return.

The $25,000 Rental Loss Allowance

If your adjusted gross income (AGI) is under $100,000 and you actively participate in managing your rental (making decisions about tenants, repairs, etc.), you can deduct up to $25,000 in rental losses against your other income (W-2, business income, etc.).

This phases out between $100K–$150K AGI. Above $150K, you can't use rental losses against other income unless you qualify as a Real Estate Professional.

Real Estate Professional Status (REPS)

If you (or your spouse) spend 750+ hours per year in real estate activities AND more time in real estate than any other occupation, you may qualify for REPS. This lets you deduct unlimited rental losses against any income — a massive tax benefit for high earners.

REPS requires meticulous documentation. Log your hours in a time-tracking app or spreadsheet with:

• Date
• Activity description
• Hours spent
• Property address

The IRS scrutinizes REPS claims heavily. Keep detailed records.

Monthly and Annual Bookkeeping Routine

Weekly (15 minutes)

• Review and categorize new bank transactions
• Photograph and file any paper receipts
• Record any cash payments (maintenance workers, etc.)

Monthly (30 minutes)

• Reconcile bank accounts with your books
• Review income by property — flag any missed or late payments
• Review expense categories for miscategorizations
• Check that mortgage payments are split correctly between interest and principal
• Update your mileage log

Quarterly (1 hour)

• Run profit and loss by property
• Compare actual vs. projected cash flow
• Review year-to-date expenses for budget anomalies
• Estimated tax payment calculation (if applicable)
• Back up all financial data

Annually (2–4 hours + CPA)

• Reconcile all accounts for the full year
• Organize documents for your CPA (or for filing yourself)
• Review depreciation schedules
• Issue 1099s to contractors paid $600+ (due January 31)
• File Schedule E with your tax return
• Review insurance coverage and property tax assessments
• Evaluate whether your accounting tool still fits your needs

Frequently Asked Questions

Do I need an [LLC for rental property](/blog/asset-protection-real-estate) accounting?

An LLC isn't required for tax purposes — rental income is reported on Schedule E regardless of ownership structure. However, an LLC provides liability protection and forces you to separate finances. Most landlords benefit from having one, especially once they own 2+ properties.

Should I hire a CPA or do my own taxes?

If you own 1–2 rentals with straightforward income and expenses, tax software like TurboTax handles Schedule E fine. Once you hit 3+ properties, do cost segregation, pursue REPS status, or have complex ownership structures (partnerships, multiple LLCs), hire a CPA who specializes in real estate. Expect to pay $500–$1,500 per return.

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). When a tenant moves out, any portion you keep for damages becomes income. Any portion you return reduces the liability. This is one of the most commonly mishandled items in landlord bookkeeping.

What happens if I get audited?

The IRS typically audits rental property owners for: excessive deductions relative to income, misclassified repairs vs. improvements, missing documentation for mileage or REPS hours, and unreported rental income. If your books are clean and documented, an audit is an inconvenience, not a disaster. Keep records for at least 3 years (7 years to be safe).

Can I deduct my home office if I manage rentals from home?

Yes, if you use a dedicated space regularly and exclusively for managing your rentals. The simplified method allows a deduction of $5 per square foot, up to 300 square feet ($1,500 max). The regular method requires calculating the percentage of your home used for business. For most landlords with small portfolios, the deduction is modest but worth claiming.

How do I track expenses for a property I'm rehabbing before renting?

Expenses incurred before the property is "placed in service" (available for rent) are capitalized, not deducted. This includes renovation costs, carrying costs (mortgage interest, property taxes, insurance), and utilities during the rehab period. Once the property is available for rent, these costs are added to your basis and depreciated.

The Bottom Line

Good rental property accounting doesn't require an accounting degree. It requires three things:

1. Separate bank accounts — Never mix personal and rental funds
2. Consistent tracking — 15 minutes per week keeps you current
3. The right tool — Match it to your portfolio size and complexity

Start with Stessa if you want free and simple. Move to QuickBooks or REI Hub when you need more power. And find a real estate-savvy CPA before your portfolio outgrows your tax knowledge.

Every dollar you track properly is a dollar you might deduct. Every receipt you keep is protection against an audit. The 15 minutes a week you spend on bookkeeping will save you thousands at tax time.

That's the math. Do the bookkeeping.

Related Articles

• LLC for Rental Property: Complete Setup Guide
• Cost Segregation Study Guide: How Real Estate Investors Accelerate Depreciation to Save Thousands
• [[Rental Property Depreciation](/blog/depreciation-real-estate-guide) Guide: How to Maximize Your Tax Deductions in 2026](/blog/depreciation-rental-property-guide)