Your rental income and expenses are just what they sound like: the revenue brought in from your rental properties as well as any costs that may accrue for maintenance, taxes, insurance, and other rental property upkeep. It’s vital to keep detailed records of any income and expenses you encounter so you can operate your business effectively and understand how profitable your properties are.

To keep track of this information, you can keep physical records and add and subtract totals by hand, you can use an automated approach via property management software (like Innago), or you can download a rental income calculation worksheet online. By consistently reviewing the income and expenses of your properties, you can gain insight into how much profit you’re earning from properties both monthly and yearly as well as opportunities to improve your profits further.

According to the IRS, “Cash or the fair market value of property or services you receive for the use of real estate or personal property is taxable to you as rental income. In general, you can deduct expenses of renting property from your rental income.”

The IRS defines taxable rental income as:

Rents

Amounts paid to cancel a lease

Advance rent

Expenses paid by a tenant

Security deposits (only if used to cover the last month of rent, to pay for damages left by a tenant, or to cover a broken lease — not if the deposit will be refunded)

The IRS defines deductible expenses from your rental income as:

Depreciation

Repair costs

Operating expenses

These forms of revenue and costs are all components of your overall rental income and expenses, which should be meticulously recorded and kept safe to reference when reviewing finances for your rental investments.

To begin tracking gross income and expenses from your rental properties, you must first know what income and expenses are important to keep record of. Both income and expenses are multifold, and their components come together to give you an idea of your profits and losses over a specified period.

Your monthly rental income, for example, will likely be mostly comprised of rent payments from your tenants; however, your rental income can include security deposits, application fees, utility payments, or other non-refundable fees such as pet rent. Each month, for each tenant, you should list the date, payment amount, tenant name, and reason. These payments can be easily added together later to calculate your monthly and annual income.

Your rental property expenses can be just as diverse as your forms of income. Cleaning, insurance, maintenance and repairs, property management, property taxes, and utilities are just a few of the common rental expenses a landlord must pay to upkeep their units. Just like with your income, you should keep detailed notes of expenses. Each month, you should list the date, payment amount, and reason.

By including as much detail as possible in your income and expense tracking, you can further explore categories of revenue bringing you the most profit and costs that are taking the most money from your wallet. You can also understand the overall profits and losses of your properties by tracking your income and subtracting your expenses. These outputs are a good indicator of the financial strength of your properties and can highlight opportunities for improvement and growth.

It may seem like common sense that knowing where your money is going is important, but its significance cannot be overstated for real estate investors. Understanding how much you’re spending on various services and what you’re really bringing in from tenants to offset those costs can indicate whether the rent you charge is appropriate in the current market. It’s also a good way to calculate your net profits or losses for a given period, letting you see the bigger picture of your rental business’ financial health.

Luckily, rental property owners don’t need to be accountants to compute basic rental finances. Using a rental property income and expenses worksheet allows you to input your income, expenses, and other financial information to automatically calculate your profits and losses. Innago's free rental income worksheet in Excel can help landlords like you compile fundamental rental metrics, hassle-free.

Looking for even more automation? You might be better served by software. Innago’s expenses and reporting feature allows you to access, organize, and report on your financials with automated invoicing and bookkeeping.

Assessing the finances of your rental business doesn’t have to be stressful. Taking steps to organize your income and expenses will enable you to understand your business and help it grow. A simple rental property income and expense worksheet template is the easiest way to start to track rental income and better understand your rental property finances. Download Innago’s Rental Income and Expense worksheet above to start tracking your cash flow and organizing your rental business.