All You Need to Know About Tracking Rental Property Expenses

Every landlord knows that tracking expenses is one of the most burdensome responsibilities when running a rental business. If your current method of expense tracking is a shoebox of receipts that you only go through when tax season rolls around, you know what I'm talking about.

That said, keeping accurate records is pivotal for your operation. Anything you can do to simplify your tax returns is a good thing. And keeping track of rental property expenses helps. Furthermore, if you’re ever audited, you can rest easier knowing you prepared your taxes properly. 

In this article, we’re going to focus on rental property expenses and how tracking them properly can save you time, effort, and expensive mistakes come the tax deadline.

The Essentials 

Let’s start with the essential items you need to track:

• • Tenant leases (old and new) dating back several years
  • Legal documents, rental inspections, court hearings, eviction notices and fines
  • Copies of all communications with tenants
  • Limited liability corporation records if you decided to incorporate as an LLC
  • Property deeds
  • Copies of utility bills, receipts for labor and materials and invoices for services that relate to your rental business
  • Insurance policies
  • Mortgage, loans and credit documentation
  • Federal and state tax returns from the last few years  

In addition to these documents, you also need to track deductible expenses. These include:

• • Proof of rental payments received (automatically recorded if your tenants pay online)
  • Legal and accounting fees
  • Office expenses, utilities and supplies
  • Advertising expenses
  • Property maintenance and repairs 

If you’re large enough to employ salaried workers, you’ll want to track salaries, withheld taxes, benefits and taxes paid by you. 

Rental Property Expenses 

Now that we know what to track, we need to look at what exactly constitutes a rental property expense.  

Depending on the kind of property you own – single-family rental, multifamily or condo – and the location, rental property expenses fall into one of two categories: 

Maintenance, Repairs, and Utilities

• • Alarm system
  • Cleaning
  • Electricity
  • Gas
  • HOA dues
  • Landscaping
  • Maintenance
  • Pest control
  • Sewage
  • Snow removal
  • Trash
  • Water 

General Operating Expenses

• • Advertising and marketing
  • Car and travel expense
  • Dues and subscriptions
  • Leasing fees
  • Licenses
  • Mortgage interest
  • Office supplies
  • Other interest
  • Phone
  • Professional services
  • Property insurance
  • Property management fees
  • Property supplies
  • Property taxes
  • Rental or sales taxes
  • Technology and software 

Additionally, real estate investors can also claim a depreciation deduction of up to 27.5 years for a residential rental.  

Depreciation is a non-cash deduction rental property owners use to reduce taxable net income. For instance, if you paid $160,000 for a single-family rental (excluding the value of the lot), you could take a depreciation deduction of $5,818.18 ($160,000 / 27.5 years)  in addition to the other tax-deductible expenses listed already. 

The Internal Revenue Service (IRS) and Rental Expenses 

IRS audits have become more common because real estate investors' income continues to rise. Every landlord wants to save money in tax season; however, it’s important to do so strategically to avoid breaking the law. 

There are four major areas the IRS takes special interest in when it comes to rental property expenses. Let’s look at these areas below: 

Meals and Entertainment 

The first thing you want to do with meals and entertainment is create a policy that you (and anyone you may employ) adhere to. Explain in the policy that your business will only reimburse meals and entertainment if business occurred before, during, or after the meal (or entertainment). Having a policy in place will look better to the IRS if they decide to audit you.  

Next, and just as important, always gather documentation. If entertaining and eating are a key part of your rental business, make sure you have sufficient documentation to support those deductions. 

Substantial Expenses that are Vague 

Another area that IRS agents often take a close look at are big expenses with vague explanations. For example, “credit card expenses,” “general and administrative expenses” or “other expenses” will often prompt close inspection. A key reason the IRS focuses on these deductions is because this is typically where taxpayers write in some questionable items. 

Of course, administrative expenses are usually perfectly legitimate. That said, we recommend you break things down and give as much explanation as possible. An example would be instead of showing $6,000 worth of other expenses, it would be wise to break it down as $1,000 for your phone, $500 for online subscriptions, $3,500 in continuing education, etc. 

It’s also wise to take an in-depth look at your rental property accounting and bookkeeping systems. If you currently have a substantial balance that all falls into vague accounts, you should break down those expenses now to make things easier when tax time rolls around. 

Charitable Donations 

While charitable donations are a good tax write-off, donations that are disproportionate to your income level will grab the IRS’ attention. For instance, if you make around $300,000 annually, the IRS expects you to be able to donate about 3-4% of that amount and nothing more. If you claim a charitable deduction way above this standard, the IRS may show extra interest in your business. 

That said, you can donate what you want, but be sure to keep very detailed records to support any claims. This includes receipts, documents, and anything else that will validate your claims. 

Travel Expenses 

As a landlord, you can deduct out-of-town travel expenses from your taxes. These expenses include parking fees, gas, meals, lodging, and more. That said, be wary of throwing money around on five-star hotels and expensive steakhouses for every meal. Gratuitous write-offs will probably lead to an audit. 

It’s also critical to have proof that your travel is for business. Mixing pleasure and business and then writing off your travel expenses won’t go over well. For example, if your rental is in Miami Beach, but you planned a vacation while checking on your property, you can’t deduct the costs of your hotel, gasoline and meals from your taxes. 

Tracking Rental Property Expenses 

What’s the best way to track these expenses? While hard copy records isn't a bad idea, using a rental income and expenses spreadsheet is a great starting point—especially when paired with digital tools.

If you’re ready to move beyond manual entry and spreadsheets, property management software like Innago gives you the power to organize every financial detail in one place. You can easily log expenses, categorize transactions, and generate detailed financial reports with just a few clicks. Beyond finances, Innago helps you manage leases, collect rent online, and communicate with tenants, all from a single, intuitive dashboard.

By automating your record-keeping and income tracking, Innago doesn’t just simplify your workload—it helps you make smarter, data-driven decisions about your properties.

Try Innago free today and see how much easier it is to stay on top of your rental finances.

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Conclusion 

Understanding and tracking your property rental expenses is the foundation of a healthy rental business. Accurate records not only keep you compliant but also give you the insight needed to maximize profit and minimize risk.

Tools like free rent receipts and expense spreadsheets are great starting points—but the best way to stay organized is by using software built for landlords. With Innago, you can automate your rent collection, log expenses, and generate detailed financial reports, all from one simple dashboard.

Smart expense tracking doesn’t just save time—it empowers you to run your business more efficiently and confidently, saves you money, and helps you stay within the confines of the law.