Questions
Straightforward answers to the questions business owners ask us about bookkeeping, payroll, and what it looks like to work together.
How should a real estate investor with multiple rental properties organize their bookkeeping?
Track each property separately so you can see income and expenses at the individual property level. This is required for Schedule E reporting and gives you the visibility to know which properties are actually making money.
Read answerWhat's the difference between a repair and a capital improvement on a rental property?
A repair restores something to working condition and is deducted in the current year. A capital improvement adds value, extends useful life, or adapts the property to a new use, and must be depreciated over 27.5 years for residential or 39 years for commercial property.
Read answerHow does depreciation work for rental property owners in Virginia?
Residential rental property depreciates over 27.5 years using the straight-line method, while commercial property uses 39 years. You must claim depreciation because the IRS recaptures it at sale whether you took the deduction or not.
Read answerWhen should a landlord form an LLC for their rental properties?
Most landlords should form an LLC before or shortly after acquiring their first rental property. The primary reason is liability protection, which separates your personal assets from claims tied to the property.
Read answerHow do property management companies handle trust accounting for owner funds and security deposits?
Property managers must hold tenant security deposits and owner funds in trust accounts completely separate from operating cash. Commingling is illegal in Virginia. Each owner needs a sub-ledger, and three-way reconciliation is the standard for keeping everything straight.
Read answerWhat's the best way to track short-term rental (Airbnb/VRBO) income and expenses?
Record gross booking revenue and track platform fees, cleaning costs, and supplies as separate expense categories for each property. Virginia localities including Fairfax County impose transient occupancy taxes on STRs, so accurate tracking is essential for compliance and for understanding your true margins.
Read answerHow do I handle bookkeeping for a house flip vs. a long-term rental?
Flips and rentals are treated completely differently in your books and on your tax return. A flip is inventory held for sale, with all costs capitalized into cost of goods sold. A rental is investment property that gets depreciated over time on Schedule E.
Read answerWhat does a 1031 exchange look like in your books?
A 1031 exchange defers capital gains by rolling the adjusted basis from the old property into the new one. Your books need to reflect the carryover basis, keep QI proceeds out of your operating accounts, and properly handle any boot received.
Read answerHow should I track mortgage principal vs. interest for rental properties?
Only the interest portion of your mortgage payment is deductible on Schedule E. Your bookkeeping needs to split every payment into interest expense, principal reduction, and escrow items like property tax and insurance.
Read answerWhat's the real estate professional tax status and who qualifies?
Real estate professional status (REPS) lets rental losses offset W-2 and business income instead of being trapped as passive losses. You qualify by spending 750+ hours per year in real estate trades and more than half your total working time in real estate activities.
Read answerHow do real estate investors handle cost segregation studies in their bookkeeping?
A cost segregation study reclassifies building components into shorter depreciation categories. Your bookkeeping needs to reflect each reclassified asset with its own depreciation schedule, and your fixed asset register has to stay detailed enough to support the accelerated deductions.
Read answerWhat's the right way to account for owner distributions from a rental property LLC?
Distributions are not expenses. They reduce the owner's equity or capital account on the balance sheet. Recording them as expenses overstates your losses and misrepresents the financial health of your rental property LLC.
Read answerHow should I categorize HOA fees, property management fees, and leasing commissions?
HOA fees and property management fees are current deductions on Schedule E but should be tracked in separate accounts. Leasing commissions may need to be amortized over the lease term depending on the amount.
Read answerWhat's the bookkeeping workflow when I refinance a rental property?
A refinance isn't taxable income, but it does require several bookkeeping updates. You need to close out the old loan, record the new one, and properly handle closing costs, points, and any prepaid items from the settlement statement.
Read answerHow do real estate investors handle QBI deduction eligibility on their rental portfolios?
Rental real estate can qualify for the 20% QBI deduction if the activity rises to the level of a trade or business or meets the IRS safe harbor. Either way, separate books and documented hours are what make the deduction defensible.
Read answerHow do I handle vacant property expenses for tax purposes?
Expenses on a rental property are deductible during vacancy as long as the property is actively held for rent. The key is documenting your marketing efforts to show the IRS the property was available to tenants.
Read answer
