What rental property expenses should I track?

There are two main types of expenses you need to document as a landlord: regular and occasional. 

Regular expenses

Regular expenses are your everyday, ongoing costs required to keep your rental business running smoothly. They’re predictable and consistent, so you can expect to pay for them at regular intervals, usually monthly. These expenses are easy to budget for, given their stability.

Some examples of regular expenses are:

• Software subscriptions
• Insurance 
• Property management fees
• Utilities
• Property taxes
• Mortgage interest
• Office costs

Occasional expenses

On the other hand, occasional expenses show up unexpectedly or seldomly. They may occur a few times per year or even once every few years. While difficult to anticipate, you’ll definitely encounter them if you’re in the rental business long enough. 

Here are some examples of occasional expenses: 

• Unexpected repairs. If your rental’s furnace breaks down during a cold winter day, your tenant will expect you to fix it immediately. 
• Vacancy costs. If you’re in need of a new tenant, expect to spend money on advertising, screening costs, and tidying up the property. 
• Legal and court fees. You may need to hire a paralegal and appear in court if you become involved in a dispute with a tenant.

Tips to streamline your rental property expense tracking

Tracking your rental’s expenses takes minimal time and effort with the right approach. Here are some tips to get started:

Keep things simple

Whatever system you choose to keep tabs on your rental expenses, keep it straightforward. The more work involved, the more likely you will make errors or overlook something. You’ll also be tempted to delay expense tracking to the last minute or skip it altogether.

Record transactions immediately

Make it a habit to record your expenses as soon as possible; ideally the same day you pay for them. You risk forgetting about transactions or misplacing receipts by waiting too long to record them, leaving you scrambling to organize expenses during tax season.

Add hyperlinks to receipts

If you use a spreadsheet to collect your expenses, add hyperlinks that point to the sites where the corresponding receipts and other essential documents are stored. That way, you’ll know exactly where to look for them if needed.

Choose a file naming system

A concise and consistent file naming convention for digital files allows you to identify them  quickly. You should be able to tell what a file relates to by its name rather than having to open it. An example of a file naming convention is “Expense-Account-Date,” which states the type of expense (e.g., furnace filter), the account it belongs to (e.g., repairs and maintenance), and the date of purchase (e.g., Sept.20-2024).

Take pictures of receipts

For an occasional expense, take a photo of the receipt using your phone immediately you make the purchase. You can also send the picture to your business email or a cloud-based storage account. Digital copies of receipts are easier to manage. 

Include the right details

Properly documenting your rental property’s expenses will save your bookkeeper the time and hassle of getting your books in order and preparing your tax return. Here are some things you can do to make their job easier:

• Mark up your receipts with notes about what the expense is for (e.g., is it for office supplies or repairs?)
• Indicate what rental property the item should get charged to (if you own multiple rental units)
• Separate personal and business expenses. For example, if you have a receipt from a hardware store, but only 25% of the cost applies to your rental property, note this in your expense tracker.

Why tracking expenses is crucial for your taxes

As a landlord, you can claim various expenses on your tax return. The more you can legally deduct, the less taxes you owe to the government, plain and simple.

However, failing to stay organized can lead you to lose track of or double-book your expenses. Furthermore, if you’re faced with an audit and can’t provide proof of the expenses you claimed, the tax authorities may disallow them as deductions, leading to additional taxes.

Our final thoughts

Busy landlords often neglect tracking expenses, but it’s critical for managing a rental property. Documenting each dollar spent will allow you to measure your profitability, make wise financial decisions, and maximize your tax deductions. 

To reap the benefits of proper expense tracking, choose a process that’s easy to follow and stick with it. Record your expenses, include necessary details, and store your receipts in a central location for easy access. Your bookkeeper will thank you! 

To learn more about managing your expenses, explore these common pitfalls in accounting for rental properties and how to avoid them.