resources for a simple method for tracking rental expenses/income

Tax, SDIRAs & Cost Segregation
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resources for a simple method for tracking rental expenses/income

Heather U.
Member since 2018 · 67 posts · 20 votes

I have 4 rental properties just recently purchased. I jumped in and am just learning as I go. I  know I need to get my tax "stuff" in order and develop a good system to keep track of all of this.  I am a pretty meticulous person so I actually don't mind the task I just don't understand it yet.  For example, as I was getting started I used $1000 of some rental income from one property to pay back a credit card that I had used to pay for living expenses while I was buying another property.  So the credit card expense wasn't related to any property purchases (not directly) but I pulled the money out of one of my property accounts.  I just don't know what to do with that transaction.  Maybe because it wasn't a business expense that I used the money for I just ignore that transaction (in terms of tax purposes?)  So...not really looking for a specific answer to that problem but it is just an example of me needing a down and dirty basic guide on the paperwork side of the rentals.  I have started using STESSA but I need to learn more.  Thanks all, sorry for making this such a long post!!

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Gita FaustBusiness Member
Accountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
6y

Just keep in mind, you want to track your financials not only for tax purposes but for you to know what your equity is for each property. 

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  • Dave Toelkes
    Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
    6y

    If you are using STESSA, then you are already traacking your rental income and expenses.  If you have not done so yet, I suggest you have separate checking accounts for your rentals and for your personal stuff.  Deposit your rental income into your rental checking account and pay your rental expenses from the rental checking account.  Pay your personal expenses from your personal checking account.  Money withdrawn from your rental account and deposited to your personal account is a withdrawal of capital and does not get entered into STESSA.  It is not absolutely essential that you have separate banking acounts for your personal and rental activities, but it does help simplify your bookkeeping.

    At the end of the year, STESSA should be able to give you an itemized report of your income and expenses for each property.  Suggest you set up your income and expense categories (if STESSA does not already have it done for you) to parallel the rental inccome and expense categories on Schedule E (1040) to facilitate tax preparation.  

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  • Heather U.
    OP
    Member since 2018 · 67 posts · 20 votes
    6y

    Thanks Dave. So I do have a separate banking account for each rental and it is linked in with Stessa already.  So what you are saying is if I transfer money from my rental property into my private account it is just a transaction but I don't need to do anything more with documenting this? It will show up on my Stessa account as a transfer out but no need to do anything more.  

    Also, great idea on the 1040 categories. I'll have a look at that. Thank you!!

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  • Basit SiddiqiBusiness Member
    Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
    6y

    @heather uhlir

    You should be entitled to a deduction regardless of how/where it was paid aslong as you paid for it. Therefore, payments made by cash, check, credit card are okay.

    You have multiple options to keep track of your records.
    Excel or an accounting software like quickbooks or Stessa will work.

    Good luck and congrats on your recent purchases.

    [email protected]917-280-8544
    Basit Siddiqi CPA4.979 Reviews
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  • Laura Viola
    Member since 2019 · 7 posts · 3 votes
    6y

    I don't have experience with stessa.  I do know that in standard bookkeeping with quickbooks or the old fashioned way with hardcopy journals and ledgers, paying personal expenses from a business account has to be classified as owners draw.  And they are not deductible business expense but you can't just ignore the transaction either.  Classifying as owners draw will prevent it being accidentally deducted as a biz expense. And you do need to account for money out of your biz accounts.

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  • Heather U.
    OP
    Member since 2018 · 67 posts · 20 votes
    6y

    Thanks both Laura and Basit. Very helpful.  

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  • Gita FaustBusiness Member
    Accountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
    6y

    Just keep in mind, you want to track your financials not only for tax purposes but for you to know what your equity is for each property. 

    1Reply
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