Bookkeeping for Landlords

You don't legally have to, but separate accounts make bookkeeping dramatically cleaner — especially if you own multiple properties. At minimum, keeping all rental activity out of your personal accounts protects your deductions during an audit. Luisa can advise on an account structure that balances simplicity with clean recordkeeping.

Only the interest portion of the mortgage payment is deductible — not the principal. The principal is a balance sheet transaction that reduces your loan liability. Properly separating interest from principal each month is a basic bookkeeping task that many landlords skip, leading to either overstated or understated deductions.

The IRS generally treats rental income as passive, which means losses can only offset other passive income unless your adjusted gross income is under $100,000 — in which case up to $25,000 in rental losses may be deductible. If you qualify as a real estate professional, the passive limitation disappears entirely. As an Enrolled Agent, Luisa understands these rules and can help you document the hours required to support a real estate professional election.

Cash rent is fully taxable and must be recorded just like any other payment. Luisa recommends issuing a written receipt for every cash payment and recording it in your books immediately. Consistent documentation protects you if a tenant later disputes payment history and ensures your Schedule E reflects actual income received.

You should retain lease agreements, rent payment records, all expense receipts, bank statements for rental accounts, mortgage statements showing interest paid, property tax bills, and insurance policies for at least seven years. For capital improvements, keep records permanently — they affect your cost basis and the taxable gain when you eventually sell.