TurboTenant Taxes

Alex Reeves: Hi everybody, welcome back to Invest Smart with Steadily. My name is Alex Reeves and I lead brand marketing for Steadily Landlord Insurance. I am so excited to be joined today by Adam Hamilton from TurboTenant Accounting. It's that time of year. Everybody's trying to get their books in order, so I'm really excited to have this conversation and highlight a couple of tips for landlords and some new features TurboTenant Accounting is rolling out. Adam, go ahead and introduce yourself and let us know what it is that you do.

Adam Hamilton: Awesome. Thank you so much, Alex. Very glad to be here chatting with Steadily. And you're right, it is that time of year. The weather gets cold, the decorations go up, and suddenly for the first time all year, people start caring about their bookkeeping. It's funny how that works.

TurboTenant is property management software for independent landlords. TurboTenant Accounting is exactly what it sounds like: bookkeeping and accounting software specifically built for real estate investors and investment property owners. Because real estate investors don't look like every other small business in America, and they shouldn't use the same accounting software.

What you get with TurboTenant Accounting is a system that's built in the language of real estate. It lets you call a property a property, instead of a class or a job or whatever your regular small business accounting software is trying to call it. And you get reports built for real estate already formatted the way the IRS wants it, like the IRS Schedule E that you'll use to report your income and expenses at the end of the year.

Alex: That makes sense. Tell us a little more, because there are a lot of accounting softwares out there. A lot of entrepreneurs use QuickBooks. What do you think TurboTenant Accounting does better than any of the other software?

Adam: TurboTenant Accounting is the only double-entry accounting software built for the real estate investment industry, which means you're able to get real CPA-quality reports out of a system that's designed to work with you rather than against you. There's nothing wrong with QuickBooks, but it's not a great fit for real estate accounting. It's designed for your average small business down the street.

One of the really important things you need in real estate accounting is property-by-property tracking. That's how the IRS requires we report our revenue and expenses, on a per-property basis. If you're using a generic small business accounting software, you're often going to have to pay for one of their high-end expensive tiers to get class tracking or property-by-property tracking. With TurboTenant Accounting, that is included by default for any portfolio size, because we know what the real estate investor needs and not what the average small business in America does.

On top of that, we offer really thoughtful features and automations for some of the tasks that real estate investors have to go through more often than most small business owners. For example, financing. If you are a landlord, you might have a loan or more than one on every single property you own. That means every month you've got a bunch of mortgages to pay and a bunch of mortgages to account for. TurboTenant Accounting's proprietary loan payment template will grab each of those loan payments and break them down automatically into their principal, interest, and escrow components, so each can receive its proper tax treatment. Not all those things are the same. On an ongoing basis, you're able to get more accurate books and make sure you're ready for tax time quicker and easier.

Alex: That's pretty game-changing. I think with most accounting software, or when you just go into your bank account, you just see that one line item. So that makes a huge difference. I actually didn't realize there are different tax implications for all those things, but that makes sense because insurance is often tied up in your escrow account.

Adam: That's exactly right. In a given mortgage payment, you have your principal repayment, which is not tax-deductible. You're just paying a loan back. You don't get to write that off. But you 100% get to write off all of your mortgage interest, the cost of getting that loan. Then you have your escrow, which not every loan has, but a lot do. What's interesting there is that the escrow component of your monthly mortgage payment is not directly deductible, because that is one-twelfth of your mortgage servicer's estimate of how much needs to be in your escrow account to pay your insurance and tax bills. But it is the actual expenses paid out of your escrow account. When your mortgage servicer remits those payments, that is when the expense becomes deductible.

TurboTenant Accounting has a feature for that. It has a reminder, because when these really big chunky expenses happen not in your business bank account but in your mortgage escrow account, it can be really easy to miss them and forget them. You need an organizational system that's going to work with the needs of an independent landlord to help lead you in and make sure you don't forget these important deductions.

Alex: That's definitely a pro tip there because so many people, whether you're having a VA help you with your bookkeeping or a property manager, probably miss a lot of deductions that way. What are some other simplified tasks that TurboTenant Accounting really helps with? As people are wrapping up, what are some best practices you'd recommend?

Adam: I've got a couple for you. At this time of year, the number one thing an investor should be focused on is making sure that you have accounted for all of your rental property related transactions. That sounds really obvious. I know that sounds obvious. Book your transactions, categorize your stuff. But it's the day-to-day of rental property accounting, and it's also the easiest thing to fall behind on.

If you practice good bookkeeping hygiene, have a separate account for your rental activity, and especially if you use an accounting software like TurboTenant Accounting to keep you organized, automated, and flowing smoothly, maybe this isn't something you've got to worry about. But if your personal and rental activity is comingled in the same bank account, or you regularly pay for rental expenses out of a personal account, this task can be much harder. It can lead to missing deductions and paying too much in tax. If you're doing your books six months later, you might not remember which of those Home Depot trips was for your personal residence and which was for your rental property. Starting off with a good foundation of separate bank accounts and using accounting software is the number one thing you can do to make sure you do not miss any of your rental property transactions and deductions.

Number two: a really commonly missed one is mileage deductions. A lot of people don't think about this, but if you're managing your own properties, the IRS allows you to claim a mileage deduction for the miles you drive to manage or maintain those properties. That's just one of those invisible things where good record-keeping basically allows you to get deductions you wouldn't have otherwise. If you go to your rental property, something needs fixing, you drive to Home Depot, you pick it up, you drive back to the rental property to fix it, all those miles are eligible for a mileage deduction. The only thing you have to do to capture that deduction is keep a record of how much you drove, when, and for what purpose. Then the IRS allows you to start writing that off on your taxes.

Number three: at this time of year, we've got a lot of the year's activity already taken care of. We're in December, maybe you're looking back on your last 11 months of books. A really common step that I see investors miss is just looking at those reports. Giving a preliminary review is a really easy way to look for obvious errors or omissions. We don't expect there to be those things, but you'd be surprised how much a common sense reading of a profit and loss statement can reveal underlying issues. Are you showing double the revenue you expect? Maybe you miscategorized some owner contributions as revenue. Maybe your repairs expense category shows $30,000 spent, but were all those really repairs, or did you have a $15,000 bathroom renovation in there that actually needs to be capitalized instead of expensed? Just remember that you, as the rental owner and operator, have the most specific and important knowledge about what's happened in your portfolio. There's really no one else, your bookkeeper or your CPA included, who can duplicate that unique insight.

Number four, my last one: this isn't really a bookkeeping tip, but if you have any questions about how things should be addressed, or any strategic things you'd like to discuss about how to adjust things to pay less tax in the future, reach out to your CPA now. Don't reach out to your CPA in March. Don't reach out in April. It's just not going to happen. Your CPA is by and large very happy to talk to you about these things, but not in the middle of tax season. You still have a little bit of a window. Schedule that conversation as soon as possible.

Alex: So many people miss that strategy session or check-in meeting, whether it's twice a year, four times a year, however often you need it. Everybody needs one, because it is so easy to miss so many things.

Adam: The important thing to keep in mind is that those strategy sessions are not always going to be about looking backwards. They're often going to be looking forwards. Your CPA can only work their magic when you and them are aligned. A strategy meeting might not be about how can we fix 2025. It might be about how can we do better in 2026. If you have that conversation now, you're able to make those changes and implement that strategy for the entire upcoming calendar year.

Alex: Talk to me about capital improvements versus repairs. Those are two different things classified two different ways. How does the platform help you determine those different types of things?

Adam: Great question. There is a baseline level of knowledge that we should all have some degree of. We provide educational resources in our knowledge base and on our marketing website to provide the basics. Do you want me to give a quick recap?

Repairs versus capital expenditures. What does this mean? It means that the costs we have for our rental properties often fall into one of these two buckets. The deciding factor is whether you are maintaining your property or improving your property. That's the core distinction we need to be asking ourselves when we're trying to decide if something should be classified as a repair or a capital project.

For example, if you need a new roof and you put a new roof on your house, you have replaced an entire home system. This is improving your ability to receive rent from this home for the coming decades, because you need a roof on the house. The IRS says unequivocally, if you put a new roof on your house, you need to capitalize those costs and depreciate them over time. But if you make a repair to that roof, if you're not replacing it but you are simply restoring its condition because there was a leak and you're making it so there's not a leak, all you're doing there is maintaining the current operation of that rental property. That is something you can write off or deduct against your rental income in that year.

If you are investing in, improving, or updating your property, that needs to be capitalized and depreciated over time. If you are managing, maintaining, or otherwise in the typical operation of that rental, then that should be a deductible expense.

The other big thing to know is that your property itself is your biggest capital expenditure. It's the biggest fixed asset that you need to track. That's another way to think about all these additional improvements. When you buy a property, you are investing in a rental business, and you don't get to deduct the cost of your investment. You get to capitalize and depreciate it. The same goes for each of these independent additional projects or improvements you're making. These are tracked separately from that main property asset.

This is where a lot of the complexity of rental property accounting and specifically fixed assets comes in. When you put that roof on, it has a different placed-in-service date, a different useful life, and is itself going to be a different asset than the property itself. You need to be able to track multiple assets all associated with the same property, all depreciating on their own timelines, in order to have the full picture. That's where a lot of the complexity comes in.

Coming back to the platform, how do we help you address that? We have native fixed asset and capital expenditure tracking at a level that is really uncommon for a consumer platform. It's because real estate investing is such an asset and depreciation driven industry. There are very few other circumstances where people with businesses at our valuations have to deal with this level of assets to track. Our system gives you the ability to have multiple assets per property, each with their own unique placed-in-service date and useful lives, and have those assets and their depreciation entries collectively roll forward to that property's Schedule E so you can file taxes on it as easily as possible.

Another thing we do is around the de minimis exception. This might be something you're familiar with, maybe not.

Alex: I'm not familiar with that.

Adam: It's really important. It's really helpful. Every so often you need to replace something at your property that would typically be considered an asset purchase. The classic example is a refrigerator, an appliance. Not that uncommon to have to replace.

Alex: Every five years it seems like.

Adam: Right. How much does the average refrigerator cost? It changes. Let's just say it's $1,000. The IRS understands that it's not really in your best interest or their best interest for everyone to be tracking a bunch of thousand-dollar assets over time. That's not really what capitalizing and depreciating is about. It's about the big investments in your property.

So the IRS provides a de minimis election of $2,500 and less, where even if it would typically be considered an asset purchase, if it's under that $2,500 mark, you can just go ahead and expense it as a deduction in this year. If you've got to replace that refrigerator, yes, technically that's an asset, but if it's under $2,500, you can go ahead and write it off. This is something we prompt you for as you are entering in your transactions. If you try and enter in an expense over $2,500, we'll pop up a little warning and say, "Hey, did you mean to capitalize this instead?"

If you still have questions or you're unsure about whether a given transaction or project should be treated as a repair or a capital project, you can also call our support team and talk it through with us. We're not CPAs. We're not going to give you financial or tax advice, but we work in rental property accounting all day, every day, and we've probably seen your situation before. We're more than happy to provide some general guidelines and context to help you get that right the first time.

Alex: That is invaluable. Just to have somebody you can ping and ask a question through a chat is super helpful, because you're usually doing this on the fly. You should be doing it as you go every month.

Adam: It's another unique thing about real estate accounting. What other businesses with total asset values between hundreds of thousands and millions of dollars have all the bookkeeping done by a non-financial professional? It's just not very common. We're entrepreneurs, we're dealmakers, we're people who can figure it out, but that doesn't mean we don't occasionally need a little help.

Alex: What does a year-end review look like inside TurboTenant Accounting? What are you handing over to your CPA? What are some of those types of reports or documents?

Adam: Great question. TurboTenant Accounting actually has something we call the tax review process, where we walk you through a couple of really easily missed deductions and help make sure you don't miss them.

The first thing you do in our tax review process is look at your unbooked transactions. If you've electronically connected your bank accounts and credit cards so we see those transactions, we want to make sure you're categorizing them all. We're going to double-check and make sure you're doing so, or if you haven't categorized some, you know why.

Number two, we're going to check for those mileage entries. Have you driven to manage or maintain your properties? If so, let's get some entries in there, get you some deductions in your auto and travel expense category.

Number three is we look for those escrow expenses. Your property tax and insurance paid out of your escrow. As I mentioned earlier, those can be easy to miss because they're happening in your mortgage servicer's escrow account, not in your operating business bank account. All year long when you've been making those mortgage payments, you've been funding that escrow account. In the tax review process, we compare the amount you funded to the amount you've withdrawn. If you've withdrawn zero, that means we still need to enter in some insurance and tax expenses.

Finally, we also check and make sure that you have depreciation entries for your properties and those fixed assets, those capital expenditures we just talked about. You don't have to manage your depreciation directly, but somebody does, because so many of our users and so many real estate investors rely on their CPA partners for some of the more complicated sides, including the depreciation piece. That's totally fine. If you're not doing it yourself, that's nothing wrong, no shade. But you need to make sure that your CPA is doing it for you. With depreciation, it's always a trust-but-verify. Make sure that somebody is handling that.

Once you've completed that tax review process, we give you a tax packet export where you have the ability to check or uncheck which reports should be included. It downloads multiple reports: your net income by property, your Schedule E by property, and depending on your needs, potentially things like the balance sheet, a fixed asset schedule, or a Form 8825. You can choose to include or exclude from your tax packet, which then downloads directly to your computer in a convenient zip file you can then turn around and send off to your CPA.

Alex: Awesome. Thank you so much, Adam. Before we finish up, what else did I not ask you that you want to discuss? What else is a good tip for landlords trying to get everything organized right now?

Adam: There's a lot of different things we could go down here, but I am luckily talking to Steadily, the landlord insurance partner, and one thing I see a lot of is people with LLCs. That's a really hot topic in the real estate investing community. Do you need an LLC for your rental property? What's really funny about this is that the answer often varies based on who you're talking to.

If you go to a lawyer and you say, "Do I need an LLC for my rental property?" that lawyer is going to say yes. You should have separation between your personal and your business assets, and the LLC, a limited liability company, is going to help shield you from liability down the line. That's great. That's a great point. I can see how that works.

But if you go to a CPA and ask that same question, they might give you a slightly different answer. They might say, "Okay, well that's fine, but did you know that incorporating that LLC comes with fees and money out the door? Maintaining that LLC over time comes with fees and money out the door." Depending on the circumstances, you may or may not need to file a separate tax return for that LLC, or if it's a pass-through entity then you don't, in which case the LLC isn't really there from a financial perspective. They're also going to say you need to make sure that you're maintaining strong separation between your business and personal and different LLCs from one another.

The long and the short of it is that LLCs can be a great solution, but they come with a lot of complexity and a lot of additional to-dos. When you're looking at them primarily, it should be from an asset protection standpoint. The other way you can address that liability and that risk factor is via insurance. I'm not a CPA. I'm not a lawyer. I'm not an insurance agent. I can't tell you everything, but I do think you should consider the simplicity of landlord insurance and umbrella insurance for the ways in which it can help you achieve the same goal of protecting your assets, but in what is ultimately a little bit simpler of an approach.

Alex: Adam, I couldn't agree with you more. We often get that question when we're talking with landlords about whether I need an umbrella policy or not. I almost always recommend them because of what you said about the piercing of your personal assets versus your business assets. It's so easy to go to Home Depot and use the wrong credit card. I'm not a lawyer and I'm not a CPA, but my understanding is that one little swipe on the wrong credit card can make things a little fuzzy on the LLC front. An umbrella policy just protects you. It's an extra layer of protection. They are not that expensive, especially compared to the annual costs you'll pay for maintaining an LLC. A lot of people overlook them, and it's a great tool to use in the toolbox.

Adam: Absolutely.

Alex: Thank you so much, Adam, for talking with us today on Invest Smart. Where can investors learn more about TurboTenant Accounting?

Adam: Find us online, turbotenant.com. From there you'll see our different features from rent collection to applications and screenings to obviously rental property accounting as well.

Alex: Awesome. Thanks so much. Have a good day.

Adam: Thank you, Alex. Appreciate you.