5 Tips: QuickBooks Online for Landlords

If you own a business, you already know what clean books feel like. You can see where the money comes from, where it goes, and whether last month was a good one. Then you add a rental property to the mix. Maybe two. Suddenly rent is landing in your business checking account, a plumber’s invoice is sitting in your truck, and nobody can tell you whether the duplex across town is actually making you money.

The good news is that QuickBooks Online for landlords can be just as clear as the books for your main business. It simply needs to be set up for the way rental property works.

Below are five practical tips for using QuickBooks for rental property, the same ones we use with landlord clients at Okie Accounting Group.

Want an expert to look over your rental books before tax season sneaks up on you? Book a Discovery Call Today

Why Rental Property Bookkeeping Is Different From Your Main Business

Your operating business and your rentals may both run through QuickBooks, but they don’t follow the same rules. For most individual owners, rental income and expenses are reported on Schedule E of the federal tax return, not Schedule C, where many sole proprietors report business income. Rentals also come with their own quirks: tenant deposits you may have to give back, buildings that are depreciated over decades, and mortgage payments that are only partly deductible.

That’s why rental property bookkeeping deserves its own structure. If your rentals sit in their own LLC, they should have their own bank account and, in most cases, their own QuickBooks company file. Each QuickBooks Online subscription covers one company, so many business owners keep one file for the operating company and a separate file for the rental entity. That keeps your numbers clean, makes life easier for your tax preparer, and helps you see each part of your financial life clearly.

Some rental property accounting software is built just for landlords, but many investors still use QuickBooks Online as their main ledger because it’s flexible and widely supported by accountants. Either way, the five tips below will keep your books useful all year.

Tip 1: Track Expenses by Property in QuickBooks with Classes or Locations

Here’s a question every landlord should be able to answer in under a minute: which of your properties made money last year? If all your rental activity lands in one pile, you can’t answer it.

QuickBooks Online solves this with class tracking and location tracking. Both features are available in QuickBooks Online Plus and Advanced. If you’re on Simple Start or Essentials, you’ll need to upgrade to use them.

Classes are the most popular choice for landlords. You create one class for each property, such as “114 Oak Street” or “Maple Duplex,” then tag each transaction with the right class. You can even assign a different class to each line of a single transaction. That’s handy when one Home Depot run covers supplies for two different units.

Locations are assigned to an entire transaction rather than individual lines. Some landlords use them for a higher-level grouping, such as a city, with classes for each property underneath.

How to Turn On Class Tracking

In current versions of QuickBooks Online, go to the gear icon, choose Account and settings, then Advanced, and open the Categories section. Turn on class tracking (and location tracking, if you want it). You can choose whether to assign one class per transaction or one per line.

While you’re there, turn on the setting that warns you when a transaction doesn’t have a class assigned. It keeps untagged transactions from muddying your property reports.

The Report That Tells You Which Properties Make Money

Once your transactions are tagged, run the Profit and Loss by Class report. You’ll see income and expenses side by side for each property, so you can spot the unit with high turnover costs or the house quietly carrying the rest of your portfolio.

Tip 2: Build a Rental Property Chart of Accounts That Matches Schedule E

Your chart of accounts is the list of categories QuickBooks uses to sort every dollar. The default list QuickBooks creates is built for a general business, not a landlord. If you leave it as is, your tax preparer will likely spend time reclassifying transactions, and you may pay for that time.

A smarter approach is to build a rental property chart of accounts that mirrors Schedule E. The expense categories on Schedule E include advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and other professional fees, management fees, mortgage interest paid to banks, other interest, repairs, supplies, taxes, utilities, and depreciation, plus an “other” line for anything that doesn’t fit.

When your QuickBooks expense accounts line up with those categories, Schedule E bookkeeping becomes a matter of running a report and handing it off.

One note for business owners with more complex structures: if your rentals are held in a multi-member LLC taxed as a partnership or in an S corporation, that entity generally reports rental real estate activity on Form 8825 instead of Schedule E. The expense categories are very similar, so the same chart of accounts idea still works. Just confirm the details with your tax preparer.

Don’t Book the Whole Mortgage Payment as an Expense

This is one of the most common mistakes we see in landlord books. Your monthly mortgage payment usually includes principal, interest, and often an escrow amount for property taxes and insurance. Only the interest portion is a deductible expense. The principal portion reduces your loan balance, which is a liability on your balance sheet.

In QuickBooks, split each mortgage payment so the principal goes to the loan liability account, the interest goes to mortgage interest expense, and any escrow goes to its own account. Taxes and insurance are generally treated as expenses when your lender actually pays them out of escrow, and your annual escrow statement shows those amounts. If you book the full payment as an expense, your profit will look smaller than it really is, and your loan balance in QuickBooks will never match the lender’s statement.

Tip 3: How to Record Security Deposits in QuickBooks the Right Way

When a new tenant hands you a security deposit, it’s tempting to call it income. But a refundable deposit isn’t yours yet. It belongs to the tenant until the lease ends and you decide whether you need to keep any of it.

The IRS agrees. You generally don’t include a security deposit in income when you receive it if you plan to return it at the end of the lease. If you later keep part or all of it because the tenant didn’t live up to the lease, you include the amount you kept in income for that year.

Here’s how to record security deposits in QuickBooks so your books match those rules:

Create a liability account. Set up an Other Current Liability account called something like “Tenant Security Deposits.” If you use class tracking, tag each deposit with the property’s class.

Record the deposit to that liability. When the money comes in, record the deposit to the liability account, not to rental income. Your income stays accurate, and your balance sheet shows exactly how much you owe tenants.

Refund from the liability. When a tenant moves out and you return the deposit, record the refund against the same liability account. The balance goes down, and nothing touches your profit and loss.

Move kept amounts to income. If you keep part of a deposit for unpaid rent or damage, move that portion out of the liability account and into income. That keeps your records in line with how the IRS treats forfeited deposits.

One important exception: if a so-called security deposit is really meant to be used as the tenant’s final month of rent, the IRS treats it as advance rent. Advance rent is included in income in the year you receive it, no matter what period it covers. If your lease says “last month’s rent,” book it as income, not as a deposit.

What Tennessee Landlords Need to Know About Deposits

If you own rentals in Tennessee, there’s an extra layer to think about. Tennessee’s Uniform Residential Landlord and Tenant Act applies in counties with a population of more than 75,000 based on the federal census, which includes the state’s larger metro counties. Where it applies, landlords who collect security deposits must keep them in an account used only for that purpose at a bank or other lending institution regulated by the state or the federal government. Tenants must also be told where that account is located, although you don’t have to share the account number.

The law has teeth. Under Tennessee Code § 66-28-301, a landlord who doesn’t keep the deposit in a separate account and doesn’t provide the required damage listing at move-out isn’t entitled to retain any part of the deposit.

This is where QuickBooks helps. Connect the deposit account and check each month that its balance matches your Tenant Security Deposits liability. Landlord-tenant rules can change, so confirm your obligations with a Tennessee attorney.

Tip 4: Separate Repairs From Capital Improvements

Not every dollar you spend on a property is treated the same way at tax time. A repair, like fixing a leaky faucet or patching drywall, keeps the property in good working order and is generally deductible in the year you pay for it. An improvement, like a new roof or an added bathroom, is usually capitalized, meaning it’s added to the property’s basis and depreciated over time.

The IRS rules for sorting these out are known as the tangible property regulations. In general, a cost must be capitalized if it’s a betterment (it makes the property better than it was), a restoration (it returns something major to working condition or replaces a major component), or an adaptation (it changes the property to a new or different use). For residential rental property, buildings and their structural improvements are generally depreciated over 27.5 years.

That difference matters. A cost you deduct this year lowers your taxable income right away, while the same cost depreciated over 27.5 years produces a much smaller deduction each year.

Safe Harbors That Can Help

The tangible property regulations also include a few safe harbors that can simplify things:

De minimis safe harbor: If you make an annual election, businesses without an audited financial statement can generally expense items costing $2,500 or less per invoice or per item, even if they would otherwise be capitalized.

Routine maintenance safe harbor: Recurring work you reasonably expect to do more than once during a set period, such as regular servicing of building systems, can often be expensed.

Safe harbor for small taxpayers: Smaller landlords who meet income and building-cost limits may be able to expense certain building improvements up to an annual cap.

Each comes with specific requirements, and your tax preparer should decide which apply to you. Your bookkeeper’s job is to make that decision easy. In QuickBooks, keep a Repairs and Maintenance expense account for true repairs, and set up fixed asset accounts for improvements, ideally tagged by property. Attach the invoice or receipt to each transaction, and write a short description of the work. When tax time comes, your preparer can see exactly what was done and where.

Tip 5: Use a Dedicated Bank Account and Bank Rules

If you only take one tip from this article, make it this one. Keep your rental money out of your personal accounts and out of your operating business accounts.

Mixing funds, often called commingling, creates headaches fast. Rental activity gets buried in unrelated transactions, and deductions are easier to miss and harder to support. And if your rentals are held in an LLC, commingling can weaken the liability protection that made you form the LLC in the first place. One dedicated checking account for your rentals (plus a separate deposit account, if state law requires it) is a simple fix.

How to Track Rental Income in QuickBooks Without the Guesswork

Once your rental account is connected to QuickBooks, you can let automation handle much of the routine work. QuickBooks bank rules can automatically categorize recurring transactions based on details like the payee, description, or amount. When class tracking is turned on, a rule can tag the property too.

A few bank rules most landlords can use:

Rent deposits: Send rent from each tenant or your property management platform to rental income, tagged with the right property.

Mortgage payments: Flag each lender payment and tag it with the right property. Because the split between principal and interest changes every month, set this rule to suggest rather than auto-add, then enter the split from your mortgage statement.

Utilities and services: Categorize recurring bills for water, trash, lawn care, or pest control to the right expense account and property.

Bank rules can either suggest a category for you to review or add transactions automatically. Start with suggestions until you trust a rule, then let it run. Add a monthly bank reconciliation, and you’ll know your numbers are right every month, not just at tax time.

Bank rules are only as good as the setup behind them. A rule built on the wrong account will repeat that mistake every time it runs, which is why it pays to have a bookkeeper who knows rental properties set them up correctly from day one.

QuickBooks Rental Property Setup: DIY or Hire a Pro?

You can absolutely handle your QuickBooks rental property setup on your own. But if you already run a business, your time is probably better spent growing it than untangling mortgage splits at 10 p.m.

That’s where landlord bookkeeping services come in. At Okie Accounting Group, our founder is a QuickBooks ProAdvisor and spent years as Director of Finance at a construction company before starting the firm. We provide bookkeeping for real estate investors and business owners who also own rentals, and we work with clients remotely across the country through a secure, cloud-based setup.

If you’ve been searching for a QuickBooks ProAdvisor for landlords, or a bookkeeper for rental properties in Tennessee or anywhere else in the U.S., we can help you:

Set up QuickBooks the right way: Classes for each property, a chart of accounts built around Schedule E, and liability accounts for tenant deposits.

Clean up what’s already there: Reclassify past transactions, untangle commingled accounts, and fix mortgage entries.

Keep it running: Monthly bookkeeping, bank rules, reconciliations, and property management bookkeeping reports you can actually use.

The Next Step

Good rental books won’t fix a bad property, but they will tell you which property is bad before it costs you more. Start with one tip, like turning on class tracking, and build from there. Each step makes the next tax season calmer and your investment decisions clearer.

And if you’d rather hand the whole thing to someone who does this every day, we’d love to talk. A quick discovery call shows you where your books stand and what it would take to fix them.

Ready to get your rental property books in order? Book a Discovery Call Today

This article is for general information only and isn’t tax or legal advice. Tax rules and state laws change, so talk with your tax preparer or attorney about your specific situation.