Rental Property Bookkeeping

hello everyone hey rich DIY landlord I want to do a quick video on landlord accounting I just recently met with my accountant wrapping up 2019 taxes and remind me when I started off many many years ago I started off just straight pine and ate family without having any idea what I was doing but as I started it out and I started collecting rent and started collecting receipts I had no idea I need to format that to give to the accountant my accountant over the years I've got a pretty good process down now the accountant always comments I've had multiple accountants they all of them a comment the job would be a lot easier if all landlords put their data together like I did they tell stories of landlords showing up with the box of receipts and just hand it which is is not a good idea for a few reasons one of which is your paying your accountant to get through a box of receipts it doesn't seem like a good way to spend money and second after you get a decent sized portfolio you need to be able to run your business and understand your numbers for your business at any time for example with the coronavirus I just went through all my numbers and calculated what's the minimum amount of rent I need to collect to meet the base expenses for my business so it's valuable to have that type of data on hand and as your portfolio grows and grows it becomes even more important none of this is difficult to do it takes a little work it's not the most fun job but keeping your book straight is fairly easy now before we get started in dive in I'm not a CPA I'm just some landlord that's hoping I don't say something stupid and get the hire S on my ass so with that let's dive in the first thing I would do is go online it and download the IRS schedule we if you google this it'll come up you can find it the schedule is income and loss for rental real estate and royalties roll at these if you don't know what the those are that's if you were leasing the mineral rights or the oil and gas rights to property and they pay you so much in royalties for that right really not focused on the rental income side so three main things I'm going to get through all these but three main things on this form is income so your rents you receive and expenses all these various category expenses and up here at the top it's your properties of properties a B and C if you have more than three properties your your accountant would fill up you know additional forms to all these able to incorporate all your properties but the main thing that takes from this is that you have to categorize your rent and all your expenses by property individual property as you're tracking this now I'm going to go through these in detail and just discuss you know what you would put in each of these categories this next page is stuff your account will fill out and I also print off the instructions for this I'm not going to cover that just one thing I want to cover is here on record-keeping and basically it says you must keep records to support items reported on your schedule in case the IRS has questions about them so in other words you need to keep your receipts now one misconception I had when I started out I thought wow if I tell my accountant that you know I had a thousand dollars in repairs for property a he's going to need some kind of documentation or receipts to in order to enter that end he doesn't he doesn't care you just tell him this $1,000 property a and he'll he'll enter it but your receipts are needed in case the IRS audits you so you need those your accountant doesn't need those if he's not doing your bookkeeping and he's just filling out your tax forms so be sure to keep your good bookkeeping have his stuff readily available know how you can easily access it so now let's go through and I'll I'll describe each of these categories and explain them in detail so the first category is in income and that's rents received now when you report this to your CPA and he reports the IRS only thing they need is the total range received by property you may want to track things under here to run your business maybe you want to know the number amount of pet peeves you get or late fees or security deposit the part that you kept from the tenant so in other words if you keep part of their security deposit when they move out for damages that counts as rental income so basically any income you have coming in you count as rents received when you report this to your accountant though you don't need to report these categories just roll this up these all roll up to one rent received per property is all you need report they don't care about this this is only for categories you'd want to track to know what's going on in your your own business so under expenses first we have advertising so this is things like maybe you put ads in the newspaper - for your vacancies or maybe buy signs to advertise your vacancies or you do online marketing to try to find properties to buy it doesn't just have to be about your vacancies it can be for growing your business as well so all these things anything advertising would go into this in just like on rents received you could keep track of each one of these separately and have a category for that but once again when you report your County it just all over rolls up as advertising by property next one's auto and travel now there's a couple of different ways you can do Auto and travel so one is mileage so you can track mileage every time you drive for your business track that mileage and then the IRS sets every year how much they're going give you per mile that you can deduct so I don't know if it's 60 cents what it is I haven't used it for years but maybe they say you can deduct 60 cents per mile so if you drove a thousand miles you'd do the math you can deduct six six hundred dollars as your deduction of using mileage the second way is if you have a business vehicle so your business owns the vehicle and you only use it for that business so and any expenses related to that vehicle would roll up under auto and travel so your insurance your gas maintenance all that rolls up under auto and travel next one is cleaning and maintenance and I'm also going to talk about repairs at the same time as cleaning and maintenance because these two categories always kind of confuse me which ones which were should it go repairs is used for break fix meaning tenant broke a doorknob off and I had to replace it or not that would be a brake fix or the oven went bad and I had to buy a new element for it and put it in that's a break fix cleaning and maintenance is pretty much all the other items such as maybe you're painting you're mowing the property anything like that your snow removal anything else that you have to do just to maintain the property keep it clean and in workable we go into this next can his commissions so this would be say that you hire a real estate agent to list your property and get a tenant for you you have to pay them a commission or maybe you're fine paying someone a finder's fee to go find rental properties that that you could buy potentially anytime you pay someone a commission it would just roll up under this category next one is insurance this is your property insurance so this would go under this category if it's insurance for your auto and travel you would put it or for your business vehicle it would go under auto and travel but this is really just your property insurance next category is legal and professional fees this would be like your attorney your CPA things like that any kind of professionals that you hire maybe you're getting a surveyor whatever those would go up under legal on professional fees management fees this is for the property manager so any fees associated with your property manager you put in this category mortgage interest this one can be a little confusing so let's say your your payment is $1,000 a month you can't write all that off for mortgage interest because I'm making this up but let's just say 200 is principal and 800 of that is interest so this is the only part you would be able to deduct them at the $200 principal you're actually retaining that in equity for your property so it's not really expensive to paid out because it's it's money coming to you to build equity this is the only expense that you actually paid out so you have to separate those two the bank does send you every year how much interest repaid so be sure to double check that with your numbers to make sure it's accurate accurate because they turn that into the IRS next one is other interest so this would be credit cards other things you pay interest on that's not mortgage interest next one is supplies so these are just any normal supplies that you just use in your business maybe it's printer paper stamps to pay bills etc paper towels whatever just any Expendables that you use in your business day-to-day taxes this is only for your property taxes utilities so this is obviously water sewer trash anything like that you pay one that I do put under here is my business cellphone but the rest of them are just normal utilities water trash your cetera and then there's other which is basically anything that does not fit into one of these categories you're not sure where it goes just starting under other I don't really use that often most things fit into category also I don't think you'll need that very often but it's it's there in case you're not sure where to put it and the final one I'm gonna cover is depreciation which this one is you really need to get with your accountant on depreciation because depreciation basically the IRS says that a residential property has a lifetime of twenty seven point five years how they came up with that number I not sure but anyhow basically you take your building cost cost and divide that by twenty seven point five and that's how much you can depreciate in each year the challenge is figuring out building costs because this isn't the total cost of the property you know it's just the cost of the building you can't depreciate the land so maybe a couple of different ways that I understand accountants do it maybe if you paid 100k they may say 20 percent of that land or 20 K is land and 80 K is building another way they do it is to look into the property assessor for your county and they look at what percentage that they split this up as far as building versus lam value and then they apply that percentage to the purchase price of the property to come up with what the building calls is alone so this one's complicated I would at least work on the accountant they can set a depreciation schedule for one one time for you and you can use that for 27 a half years but I would definitely work with them to initially set that up the other thing on depreciation it's not just for the item for the building itself but maybe you've made major capital improvements such as you put a roof on or maybe you bought a laptop for your business so these have different depreciation schedules that your account can figure out and then he can help you apply those each year now those are all the Schedule II categories we've just covered but I'm going to talk to you about a couple more things that you will need to track easier to give to your accountant so one we just mention a little bit is capital improvements so if you do something major like a roof or a major remodel maybe put in a new driveway new parking lot or something you need to keep track of those separate they they would not guarantee repairs or cleaning and maintenance these would go under a capital improvement which is not listed on the schedule because it rolls up on our depreciation and give that number to your accountant tell them what was it was for and they will figure out the proper depreciation schedule for that item and the third one is is any kind of distributions you should I can't spell it so I'm just one scribble it real bad so you can't tell I can't spell it but distributions are if you take money out of your business so if you paid maybe you have shareholders or other owners that you pay or pay yourself keep track of that they'll need to know how much you pulled out of your business each year so that's it that's it and I know this is not a fun topic it is one that is important and one that we you need to keep track of every year to make sure that your property reporting all your income and losses to to the IRS so hope you enjoyed this as much as this topic could be enjoyed and if you have any questions please leave them in the comments below thanks for watching

Channel: The DIY Landlord

Views: 15,203

Rating: 4.9908257 out of 5

Keywords: rental property accounting, rental property Bookkeeping, Schedule E, rental income, rental expenses, rental accounting, rental bookkeeping, how to track rental expenses, how to fill out schedule E, Landlord Bookkeeping, real estate investing, property management, managing real estate, real estate investing for beginners, rental property tax deductions, depreciation, landlord, landlords, how to track rental property expenses, investor, rental property depreciation, house hacking

Id: M92hssH29Mk

Length: 16min 31sec (991 seconds)

Published: Sat May 16 2020