Tracking rental property expenses is important. Sure, this may not be the sexiest part of being a landlord but it’s necessary. Every dollar you spend lowers your taxable income. Tracking your rental expenses throughout the year will help. You will thank yourself during tax season.
Over the years of being a landlord, owning rental property, and running a property management company, I developed a user friendly landlord spreadsheet for tracking expenses. And I’m willing to share it with you for free.
The property management company I ran tracked expenses for our clients. At the end of the year we provided our clients with a free spreadsheet and receipts. Our clients loved the form because it was itemized, easy to read, and detailed.
Their accountants loved the document because we made their job easy. How?
Real estate income and expenses are filed using Schedule E on federal tax returns. The Schedule E has two main sections for inputs – income and expenses.
The spreadsheet tracks all rental income. The spreadsheet also tracks property management fees. Property management fees for residential properties (1-4 units) usually costs 8-10% of the gross rents. Property management fees for commercial properties (5+ units) usually costs 3-5% depending on the size of the building. The spreadsheet calculates the property management fee.
Our form tracks the main expense items on the Schedule E like repairs, supplies, cleaning and maintenance. We do not track all the ‘expense’ categories; some expenses are not property managers responsibility. Items like insurance, interest, and taxes should be tracked by owners. Owners should consult an accountant for items like depreciation and amortization.
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If you are self managing, this spreadsheet will keep you organized. Be sure to keep ALL receipts for your rental property expenses. This makes tax prep easier. Also, you will want the receipts if you are audited in the future.
When I say all receipts, I mean ALL receipts. You will want to keep the small $5 purchase for a flapper when you fix the toilet. This also means you need to keep receipts for big item purchases like appliances, renovations and equipment.
When you are dealing with contractors, always request an invoice. Additionally, always request a receipt for the work. Do not work with a contractor that is unwilling to provide an invoice. Additionally, do not pay a contractor until they provide an invoice. When you pay the contractor – they are of the hook and have no motive to provide an invoice/receipt for your records.
Advertising – I don’t believe in paying for advertising. I’ve discussed how to find tenants and avoid vacancies without paying for advertising or marketing.
Auto and travel – You are allowed to deduct some or all of your travel and travel related expenses. This includes milage, flights, hotels and meals. Keep your receipts and talk with an accountant if you have questions about what counts as an expense.
Commissions – I don’t believe in paying commissions. I like finding my own tenants. However, some property managers and leasing brokers may charge you a fee to rent your property.
Insurance – having insurance is a must if you own real estate. If you have an escrow fund with your mortgage, your loan servicer may keep track of insurance expenses for you. Either way, your insurance cost counts as an expense and will lower your taxable income. If you don’t have insurance, get it.
Legal and other professional fees – Legal bills also fall into the category of rental property expenses. I recommend having a local real estate attorney review your lease. Every market is different and you want a lease that protects your interests. You may also have legal bills if there is an eviction or lawsuit.
Management fees – this expense is not applicable if you self-manage your property.
Mortgage interest paid to banks – your bank or loan servicer will send you a 1098 mortgage interest statement. The document will provide how much interest you paid for the year. The document may also include real estate taxes and insurance expenses.
Repairs – repairs are inevitable. Thankfully, you are allowed to deduct the labor and material costs associated with the repair.
Supplies – this is a board category. Supplies may be cleaning products, paper clips or paper.
Taxes – if you own property, you will owe property taxes. Uncle Sam is greedy and will make you pay real estate taxes.
Utilities – in some instances, landlords pay for utilities. As a landlord, I try to avoid paying for utilities. If you do pay for utilities, keep all of your bills. You can also deduct this expense. Some common utilities are water, gas, and electric. In some instances, I’ve heard of landlords paying for cable or internet as well.
Depreciation – depreciation is one of the many benefits of owning real estate. Depreciation doesn’t apply to the entire property. You can depreciate the building and the improvements at the property. Land does not depreciate. Residential real estate depreciates on a 27.5 year schedule. This means you can write off 3.63% of the building’s value annually. Sometimes properties depreciate over a three to five year period. Please consult an accountant regarding your property’s depreciation schedule.
I hope you find my rental property worksheet useful. The spread sheet will serve you well. The document can act as a rental expense worksheet template. Please feel free to customize to your needs. If you own rental property, how do you track your rental property expenses?