• Rental Property Accounting Software

How to Streamline Tax Season with Rental Property Accounting Software

January 8, 2025 9 min read

How to Streamline Tax Season with Rental Property Accounting Software

Tax season always sneaks up on the ill-prepared. As a landlord managing multiple rental properties, you may have found yourself scrambling each year to find documents, generate receipts, and track down payments. Luckily, it doesn’t have to be this way!

Modern technology has allowed for some impressive achievements, including, in recent years, the refinement of tax software for rental property. Rental property accounting software can automate most of your accounting processes—bookkeeping, number crunching, and more—so that when it’s time to file, you have everything you need.

Understanding Rental Income Taxation

Rental income taxation can be complex, but understanding the basics is essential for rental property owners. In this section, we’ll break down what rental income is, how to report it, and what deductions are available.

What is Rental Income?

Rental income is the income earned from renting out a property, such as a house, apartment, or condominium. This income is considered ordinary income and is subject to taxation. Rental income can come from various sources, including:

• Rent payments from tenants: The most common form of rental income, these are the regular payments you receive from tenants for the use of your property.
• Security deposits: If you keep a security deposit instead of returning it to the tenant, it becomes taxable income.
• Late fees and penalties: Any additional charges you impose on tenants for late payments or other penalties are also considered rental income.
• Other payments: This includes any other payments received for the use or occupation of the property, such as lease cancellation fees or payments for services provided to tenants.

Understanding these different sources of rental income is crucial for accurate financial reporting and tax compliance.

How to Report Rental Income

Rental income is reported on either Schedule E Supplemental Income and Loss (attached to Form 1040 or 1040-SR) or Form 8825 Reporting Rental Earnings Through Partnerships or S Corps. Rental property owners must report all rental income earned during the tax year, including income from multiple properties. The IRS requires rental property owners to keep accurate records of rental income and expenses, including:

• Rent payments and deposits: Document all rent payments received, including dates and amounts.
• Lease agreements and contracts: Keep copies of all lease agreements and contracts with tenants.
• Bank statements and cancelled checks: Maintain bank statements and cancelled checks to verify rent payments and other transactions.
• Invoices and receipts for expenses: Keep all invoices and receipts for expenses related to the rental property, such as repairs, maintenance, and utilities.

Accurate record-keeping is essential for reporting rental income and expenses correctly, ensuring compliance with tax regulations, and minimizing your tax liability.

Streamlining Features of Software

To prepare for tax season, some landlords choose to utilize Certified Public Accountants (CPAs), ledgers, spreadsheets, or accounting software. For those managing an investment property, rental property accounting software can be a game-changer in terms of financial management and tax strategies.

Rental property accounting software is unique because it combines so many budget-tracking, property managing, and tax-related features into one. With the power of rental property accounting software, you can streamline tax season—easing the stress of taxes while increasing your revenue at the same time. Don’t believe us? Here are some top streamlining features of rental property accounting software.

Automated Rental Property Transaction Tracking

Perhaps property accounting software’s biggest feature is its ability to track rental property income and transactions of all kinds automatically. By linking your bank accounts, your transactions can be automatically imported and stored in the accounting software online. Likewise, if you create budgets, related expenses can be tracked in them.

In the case of Ledgre, landlords need only to link bank accounts with Plaid to get started. Once your accounts are securely connected and authenticated, Ledgre automatically imports all of your bank data and adds it directly to your online books.

Most automated software operates on cash basis accounting—an accounting method wherein you track transactions when money changes hands. However, software may also allow you to manually input accrual transactions—which tracks transactions when they are incurred, regardless of whether money changes hands—as needed. For tax purposes, this is very important. Certain regulations and principles, such as constructive receipt of income, can require landlords to report certain transactions with accrual accounting, so software flexibility is key to a user’s success.

Budget Tracking

In addition to keeping track of your expenses and income, rental property accounting software will automatically track your budgets as well. Whether you own a residential rental property or multiple units, automated budget tracking will help you manage your finances more effectively. With robust software, you can create customized budgets that will make keeping a close eye on your budget spending much easier.

Automated budget tracking will also accurately display budget metrics for specific properties, projects, etc. throughout the year while relieving the stress you feel from organizing receipts and transactions. You can quickly check on the status of various budgets and assess whether you need to allocate more money for certain ones depending on what you find.

Record Storage

As a rental property owner, rental property accounting software also offers a tidy place to store all records and details of your transactions. You can easily input details such as budget categories, unit numbers, and the accounts from which transactions came and were received.

Additionally, to simplify the syncing process while making the switch, rental property accounting software allows users to bring existing data onto the platform by uploading a CSV file. With the information provided, your data will automatically populate into the system. Many platforms also offer a manual data entry option as well as property management software API options. With these two tools combined, all your rental property data will automatically sync, making tracking your transactions even easier.

Organization

Another great feature of rental property accounting software is its vast customization capabilities. For those involved in real estate, having a well-organized system is crucial for managing multiple properties and tenants. More robust software will include helpful customizations, such as allowing you to organize transactions for each property, unit, and tenant. This way, you can easily view different aspects of your expenses and income, and you can quickly get a bird’s eye view of your finances.

Is one property doing significantly better than a similar one? Is a particular unit having an abnormal amount of maintenance issues? With all of your finances one quick glance away, you’ll be more likely to spot any ongoing trends that you may have at first missed.

Accessibility

Rental property accounting software is also unique thanks to its ability to be accessed virtually anywhere. All of your data is stored securely online, meaning you can track your finances and prepare your taxes in the comfort of your own home. You can monitor your business’s metrics from anywhere, allowing you flexibility and the power to keep a close eye on your finances.

The user-friendly interfaces boasted by most rental property software are another factor to consider. Developers understand that landlords don’t typically have substantial amounts of accounting experience, so they’re often as straightforward and no-nonsense as possible. With rental property accounting software, you won’t have to learn an overly complex program or meticulously input formulas into a virtual sheet.

Schedule E Generation with Tax Software

Many landlords stress over the intricacies of how to calculate rental income for taxes. But with automated rental property accounting software, calculating your yearly taxes on rental income becomes a breeze.

Some of the best tax software for rental property accounting will even automatically generate tax forms and calculate your taxable income for you given the information you’ve provided throughout the year. Ledgre compiles all the data you’ll need to complete your Schedule E tax form, which includes income, expenses, deductibles, and more. It’s important to double-check the automatic work of your tax software for rental property, but they’re generally a very reliable and tested tool. Depending on your software of choice, it may support other tax forms for landlords.

Rental Property Tax Deductions

Rental property owners can deduct various expenses to reduce their taxable income. These deductions can help minimize tax liability and maximize cash flow. Let's explore what deductions are available and how to claim them.

What Can I Deduct?

Rental property owners can deduct a wide range of expenses, including:

• Mortgage interest and property taxes: The interest paid on your mortgage and property taxes are deductible expenses.
• Operating expenses: This includes utilities, maintenance, and repairs necessary to keep the property in good condition.
• Depreciation and amortization: You can deduct the depreciation of the property over its useful life, as well as amortization of certain expenses.
• Travel expenses: If you travel to manage your rental property, these expenses can be deductible.
• Professional fees: Fees paid for accounting, legal services, and property management are deductible.
• Advertising and marketing expenses: Costs incurred to advertise and market your rental property can be deducted.
• Insurance premiums: Premiums paid for insurance coverage on the rental property are also deductible.

To deduct these expenses, rental property owners must keep accurate records and follow the IRS guidelines for deducting rental expenses. It’s essential to consult with a tax professional to ensure that all eligible deductions are claimed, helping you reduce your taxable income and maximize your investment property’s profitability.

Conclusion

As tax season rears its head, you may come to realize that the best tax software for rental property is already built into your favorite rental property accounting software. If you fully utilize every feature of your online accounting software then taxes, budgeting, organization, and so much more, will be significantly easier.