Real Estate Accounting Guide 2025

Real estate accounting is a dynamic part of the business that includes managing money, property deals, taxes, and more. It is one tricky aspect of owning rental property, especially if you are just starting as a rental property owner. It does not have to complicated as it appears. You just need to build a foundation of good accounting practices. Whether you have bought your rental property or manage a portfolio of properties, these practices will enable you to make the right decision and avoid costly affairs.

What is real estate accounting?

Real estate accounting tracks money in property deals. It covers buying, selling, renting, and managing all types of real estate. This includes homes, shops, offices, and empty land waiting for development. Accounting rules for estates are different from other businesses. It involves long-term commitments, complex tax rules, and large amounts of money. To improve your real estate accounting, consider the following areas:

Property Values: Knowing what your property is worth matters for taxes and insurance. A property’s value changes based on where it is, what shape it’s in, and the local market. You can find the value in three ways: compare it to similar recent sales, figure out what it would cost to build again, or look at how much income it can make.
Depreciation and Wear: Buildings lose value over time as they age. The IRS lets you claim this loss to lower your taxes. Homes you rent out lose value over 27.5 years. Office buildings and shops lose value over 39 years. Land does not lose value because it doesn’t wear out.
Cash Flow Tracking: Money comes in from rent, sales, or fees. Money goes out for repairs, taxes, insurance, and loans. Keeping track of money in and out shows if your property makes money or costs you more than it brings in.
Financing: Most real estate deals use a mix of your money and loans. For example, you might pay 20% and borrow the other 80%. This affects your taxes, profits, and risks. Good records help you see how much you still owe and how much you fully own.
Investment Returns: You can measure profit in different ways. Cap rate shows how much you earn each year as a share of the property’s value. Cash-on-cash return compares the yearly cash you get to what you first paid. These numbers help you compare deals and choose where to put your money next.

Real estate accounting basics

Choosing how you do your accounting affects your taxes and your money picture. Each method works differently.

Cash Method

You count money when it comes in or goes out. If you get rent in January, you count it then. If you pay for repairs in March, you deduct them in March. This method is easy to follow. Small landlords often use cash accounting. It works well if you want to control when you report income or expenses. But it doesn’t show everything you owe or what others owe you.

Accrual Method

You count money when you earn it or owe it, even if you don’t have it yet. If tenants owe you December rent but pay in January, you still report it as December income. Same with bills — if you get a bill in December but pay in January, you record it in December. This method shows a clearer picture of your money. It shows all your deals as they happen. Banks and investors like this because it’s harder to hide problems. Most landlords or businesses with many deals use accrual accounting. The IRS says you must use it if your average receipts are over $25 million for three years.

Which Should You Pick?

Think about how big and complex your business is. Many small landlords start with cash and switch later. Talk to an accountant to see what fits you best.

How to Record Real Estate Deals

Different deals need different records. Doing it right keeps you out of trouble.

Buying Property:

When you buy, you don’t just record the price. You add closing costs like title fees, lawyer fees, and inspection costs. This total is your property’s “basis.” It affects how much you can claim for depreciation and taxes when you sell.If the deal includes land and a building, split the cost. You can only depreciate the building, not the land. Use tax records or an appraisal to split it.

Selling Property:

Selling can mean paying capital gains tax if you make a profit. Depreciation makes this trickier. The IRS wants back part of the deductions you took before. A 1031 exchange can delay taxes if you swap one property for another. These deals have strict rules and deadlines. Work with pros who know how it works.

Rental Income and Costs

Track rent every month. Include late fees and pet deposits. Common write-offs are:

Property management fees
Repairs and upkeep
Insurance
Property taxes
Utilities you pay
Ads for tenants
Professional help like lawyers and accountants

Repairs keep the property in shape and can be deducted in the same year. Improvements add value and must be written off over many years.

Loans and Mortgages

Mortgage payments have two parts—principal and interest. Only interest is deductible. Your lender gives you a form each year with this info.Points paid to get a loan are spread over the life of the loan, not all at once. Refinancing has its own rules for writing off points.

How Does Good Accounting Help Real Estate Agents?

Real estate agents are their own bosses. They need good records to track pay, handle costs, and plan for taxes.

1. Tracking Commissions

Most agents earn through commissions. These come at odd times and from many places. You must track:

How much do you get and when
Which deals paid you
Splits with other agents or referral fees
Paybacks if a deal falls through

Some pay right at closing. Others take longer. Good records help you chase late payments.

2. Handling Expenses

Agents have lots of costs that lower taxes. Common ones:

Marketing—signs, flyers, cards
Car expenses for showings
Office stuff
Licenses and training
Client gifts or meals
Phone and internet
Pro photos and staging

3. Plan for Taxes

Agents pay self-employment tax plus income tax. This adds about 15% more. Good planning helps:

Pay taxes every quarter to avoid fines
Save money during the year
Use all write-offs you can
Put money in retirement plans to save more

4. Plan for Ups and Downs

Commission checks come and go. Some months, you make a lot. Some months, you make nothing. Good records help you:

See your average income
Save for slow months
Make better choices on spending

5. Real Estate Accounting Mistakes to Avoid

Many people in real estate make the same money mistakes. Here are some to avoid: Bad Record Keeping Missing receipts means losing write-offs. The IRS wants proof, or you lose money. Save receipts right away. Use your phone or an app. Check records each month. Mixing Money Don’t mix personal and business money. It gets messy and can cause legal trouble. Open separate accounts and cards for business. It makes taxes easier, too. Wrong Property Values Guessing wrong can hurt you. Overpricing leads to bad deals. Underpricing means you might pay too much tax. Get an appraisal when it matters. Watch the market for price changes. Missing Tax Changes Tax rules change all the time. Missing updates can cost you money. For example, the 2017 tax law made big changes. Some deductions went away. Some new ones came in. Ignoring Cash Flow Don’t focus only on property value. Make sure rent covers costs. Track money in and out every month. Have savings for repairs and vacancies. Not Enough Insurance Having the wrong insurance can ruin you. Landlords need more than homeowners. Get enough coverage for damage and lawsuits. Review it every year. Tax Forms You Need Your business type decides which forms you file: Sole Owner or Single LLC

Form 1040 (personal tax return)
Schedule C (business income)
Schedule E (rental income)

Partnership

Form 1065 (partnership return)
Schedule K-1 (each partner's share)

Corporation

Form 1120 (C Corp) or Form 1120S (S Corp)
Schedule K-1 for S Corp owners

Other Important Forms

Form 1099 for contractor payments
Form 8825 for rental property in partnerships
Form 4797 for property sales

What Real Estate Accountants Do

Real estate accountants handle:

Financial reports - Income statements, balance sheets, cash flow reports
Tax work - Filing returns and finding tax savings
Audit help - Supporting you during tax audits
Financial advice - Helping you make better money choices

Software Useful for Real Estate Accounts

Good software makes accounting easier:

QuickBooks - Popular choice with real estate features
Buildium - Made for landlords and property managers
AppFolio - Another property management option
Xero - Cloud-based with easy sharing
Wave - Free option for small businesses

The Bottom Line What looks like a complicated task can be well managed with good accounting practices. Keep detailed records of everything, including agreements, receipts, contracts, and more. This helps you build trust with partners and lenders. When your numbers are accurate and well organised, people have confidence in your business. If you still struggle with being consistent, you can always take professional help. At BookkeeperLive, we help you rest estate business grow with accurate and organized accounting solutions.