5 Rental Property Accounting Software Features You Should Know

If you’re a property owner, you may already benefit from the many services offered by rental property accounting software. Core features like income and expense tracking, financial reporting, and Schedule E generation help landlords year-round and especially during tax season.

However, you may not be aware of all the features offered by your software platform or the best way to take advantage of them.

In this article, we’ll describe five secondary features you may have access to on rental property accounting software and how to use them to streamline your accounting.

#1 Receipt Scanning and Document Storage

The first secondary feature to look for is receipt scanning and document storage. Landlords and property managers naturally accumulate a lot of paperwork in day-to-day business: Receipts, invoices, lease agreements, contracts, financial reports, and more.

The best rental property accounting software can act as your personal document manager, storing your data and organizing documents so the insights you need are always only a few clicks away.

We all know the frustrations of holding on to paper receipts, stashing them away in physical folders, and slowly accumulating an unnavigable mountain of files over time. Using software solves this problem easily and effortlessly. If you need a file, it will be there; otherwise, you can forget it’s there.

Many software platforms also offer cloud storage so you can ensure your data, documents, and asset account information are backed up at all times.

#2 Payee/Vendor Management

Property owners typically collect a handful of reliable vendors and contractors to help them with various tasks involved in the managing of their properties. These vendors might include electricians, technicians, handypersons, landscapers, pest control companies, waste management services, agents, accountants, photographers, and many more.

If you initiate payments to vendors regularly, it’s worthwhile to set up a recurring payee/vendor on your accounting software. This feature, if available, can allow you to create and define payee/vendor relationships and associate transactions with specific payees. This can be a useful way to simplify tracking expenses or accounts receivable related to property management vendors and other contractors you use on a regular basis.

#3 Automated Reconciliation

Bank reconciliation is the process of comparing your company’s internal records with your bank statements to verify the accuracy of your financial data.

The process involves syncing and matching transactions like deposits, withdrawals, and fees recorded in your books with those reported by the bank. If any transactions occur without a match, your software will flag the discrepancy, and you’ll know something isn’t right.

Many rental property accounting software options offer automated payment reconciliation as a useful secondary feature. Bank and/or loan reconciliation matches imported bank transactions with transactions recorded to ensure the accuracy of your data. It saves time by reducing manual data entry, decreases errors, enhances transparency, and can help you detect fraud or unusual activity in your books. If there is anything amiss, you can be notified in real time in case action is needed. For this reason, automated reconciliation is a must-have for those interested in secure and accurate reporting.

#4 Depreciation/Fixed Asset Tracking

Depreciation is the gradual decline in value of long-term assets and capital improvements over time. To account for depreciation, the IRS (Internal Revenue Service) requires landlords to take regular depreciation deductions on their qualifying assets: capital expenditures like new roofs, appliances, equipment, and buildings themselves.

However, calculating your depreciation deduction amount is not always a simple endeavor. There are several different methods of doing so via MACRS depreciation: The “straight-line” method deducts equal amounts of the asset’s cost basis over each year of its recovery period or useful life, while “accelerated depreciation” involves taking larger depreciation deductions in the early years of an asset’s life and smaller amounts in its later years. The method you choose depends on your assets and the tax rules that apply to them, so having a software feature that handles this for you can be an immeasurable time-saver.

Some accounting platforms allow you to add your depreciating assets and track them over time so that you’ll know exactly what to deduct come tax season. Of course, a licensed tax accountant can also help you with this process–but software can make their job easier, too.

#5 Accrual Accounting Support

A final secondary feature you may want to consider is accrual basis accounting support. As you might be aware, most smaller landlords use a method of accounting called cash basis accounting, where transactions are recorded when you receive the cash. However, some landlords and larger management companies use a different accounting method, called accrual accounting.

Accrual accounting differs from cash accounting in several ways. The accrual based accounting method records transactions when they are earned or incurred, not necessarily when the cash itself is actually received. For example, under the accrual basis accounting method, rent payments are recorded on the date they’re due (when they’re expected), even if the tenant’s account was overdrawn when the payment was made and you didn’t actually receive the funds until a few days later.

Most rental property accounting software platforms offer support for the cash basis method of accounting, which is also what most landlords use. However, some platforms may also offer accrual method accounting capability. This will allow you to switch to the method you prefer or are obligated to use by the IRS. Consistency matters here, so regardless of which standard accounting practice you choose, your software can help you stick to it and record transactions the same way each time. This will ease your stress during tax season, when you must report rental income and expenses to the IRS and identify the accounting method you used.

Conclusion

While the above secondary features of rental property accounting software may not be available on every platform, each can provide valuable benefits for property owners and managers. These features can streamline financial management, improve accuracy, help visualize your cash flow, and upgrade your accounting with more advanced functionality, allowing you to easily follow the generally accepted accounting principles of your company.

If any of these secondary features align with your specific needs, be sure to prioritize them during your search for the right software. Finding the right platform with the right tools for your business can take managing your rental properties from cumbersome to carefree.