Rental Property Accounting Basics for the New Landlord

If you own rental property, you're running a business — even if it's just one duplex. The IRS treats your rental income as Schedule E income, and the only way to keep more of it is to track expenses obsessively.

Cash vs accrual accounting

99% of small landlords use cash basis: you record income when you receive it, expenses when you pay them. Simple, matches your bank account.

Accrual basis records income when earned (rent due date) and expenses when incurred. More accurate for analysis but more bookkeeping. Don't use accrual unless you have 50+ units or an accountant pushing you to.

The 9 IRS deductible expense categories

Track these from day 1 — even a $12 light bulb counts:

1. Mortgage interest (lender sends you a 1098)
2. Property tax
3. Insurance (landlord policy + umbrella if you have one)
4. Repairs and maintenance (anything that restores condition, not improvements)
5. Property management fees (if you pay a third party)
6. Utilities you pay (water, sewer, trash often)
7. HOA / condo fees
8. Travel to the property (mileage at IRS rate, currently $0.67/mi)
9. Legal and professional fees

What's a "repair" vs an "improvement"?

Critical distinction: repairs are deductible the year paid. Improvements must be depreciated over 27.5 years.

• Repair: replacing a broken window, painting, fixing a leak
• Improvement: adding a room, replacing the entire roof, installing central AC where there was none

Get this wrong and you either over-deduct (audit risk) or under-deduct (leave money on the table).

Depreciation: the silent tax shield

You depreciate the building (not the land) over 27.5 years. On a $300K duplex with $50K land value, you deduct $9,090/year — even though you spent nothing that year. This single line item often turns paper-positive cashflow into negative for tax purposes (legal, intentional).

How Proprietio helps

Every expense you log in Proprietio gets categorized to one of the 9 IRS categories automatically. At year-end, export your Schedule E summary in 1 click — your tax preparer will love you.