How to account for a tenant's bounced (NSF) rent payment and the returned-payment fee
When a rent payment bounces, reverse the deposit in the books (do not delete it), put the amount back on the tenant's balance, record the fee your bank charged as an expense, and, if your lease allows a returned-payment fee, charge it to the tenant as a separate line. When the tenant pays again, record the new payment as usual.
What happened, in bookkeeping terms
NSF stands for not sufficient funds. The tenant's payment (a check, or an ACH or bank transfer that was later returned) credited your account at first, then the bank took the money back. For a while your balance and your books showed money that did not exist, so the books need to follow the bank step by step: a deposit, a reversal, a fee.
What you can charge the tenant is a legal question. It depends on your lease and your state, and it is covered in what a landlord can charge for bounced rent. This post is the bookkeeping side, and it works the same way either way.
Record it in four steps
- Record the original payment on the day you deposited it. Debit checking, credit the tenant's receivable. Rent was paid, according to the bank.
- When the payment is returned, reverse it. Credit checking, debit the tenant's receivable. Do not delete step 1: the bank statement shows both, and your reconciliation needs both.
- Record the bank's returned-item fee. Debit a bank charges expense, credit checking. On Schedule E, an expense with no line of its own goes on line 19, other expenses. The instructions say to enter on line 19 any ordinary and necessary expenses not listed on lines 5 through 18. See the Schedule E instructions.
- If your lease allows it, charge the tenant a returned-payment fee as its own line on their ledger. Debit the tenant's receivable, credit a fee income account. Keep it separate from rent so reports show it.
When the tenant pays again, record the new payment as a normal payment against the balance. The bounced one is history, not a mystery on the ledger.
A worked example
Example a made-up tenant owes $1,500 rent due June 1. On June 3 the tenant's check is deposited. On June 8 the bank returns it and charges the owner a $12 fee. The lease allows a $35 returned-payment fee, which the owner charges. On June 12 the tenant pays $1,535 by bank transfer. The tenant's ledger ends at $0.
| Date | Entry | Checking | Tenant owes |
|---|---|---|---|
| June 1 | Rent charge | +$1,500 | |
| June 3 | Check deposited | +$1,500 | -$1,500 |
| June 8 | Check returned | -$1,500 | +$1,500 |
| June 8 | Bank fee (expense) | -$12 | |
| June 8 | Returned-payment fee charged | +$35 | |
| June 12 | Tenant pays $1,535 | +$1,535 | -$1,535 |
| Result | $1,523 | $0 |
Check the arithmetic: checking changes by +1,500 - 1,500 - 12 + 1,535 = +$1,523. That equals rent of $1,500 plus the $35 fee, less the $12 the bank charged: 1,500 + 35 - 12 = 1,523. The month's income is $1,535 ($1,500 rent and $35 fee) and the expense is $12.
What it means for income
On the cash method, IRS Publication 527 says you report income in the year you actually or constructively receive it. A bounced payment was not kept, so it does not count as rent received. Only the good replacement does, and your books above reflect that. See IRS Publication 527. If the tenant never pays and you write the balance off, the treatment depends on your method and the facts, which is a question for your tax preparer. The post on deducting unpaid rent covers the general idea.
Whether a returned-payment fee kept by the owner is reported as rental income on Schedule E is a point to confirm with your preparer. Keep the fee in its own account so the answer is easy to apply.
If the payment was an ACH or transfer
The same four steps apply. The difference is timing: an electronic payment can be returned days after it was credited, so a payment shown as received at the start of the month can reverse near its end. Your reconciliation should look for a credit followed by a matching debit with a return reason. The timeline is in how long an ACH rent payment takes.
Do not treat rent as settled, or stop a late-fee clock, on the strength of a deposit that has not cleared. Watch the account for a return before you consider a late fee or notice resolved. A tenant who bounces a payment often has a pattern worth noticing. See what to do about a tenant who pays late.
How DoorKeeping handles it
Rent stays in your own bank: tenants pay you directly and DoorKeeping never holds it. Bank feeds match each deposit to the lease by its memo and its exact amount. When a matched deposit is later returned, the match is reversed, the balance comes back on the tenant ledger and the bank fee can be coded as an expense that maps to Schedule E. A late fee or any charge to the tenant waits for your one-tap approval. DoorKeeping gives no legal or tax advice, so check what you may charge with your state's rules and how it is reported with your tax preparer.
Sources
- IRS, Publication 527, Residential Rental Property (2025), read Oct 30, 2026
- IRS, Instructions for Schedule E (Form 1040), read Oct 30, 2026
Questions
- How do I record a tenant's NSF check?
- Reverse the original deposit, restore the amount on the tenant's balance, record the bank's returned-item fee as an expense, and add any returned-payment fee your lease allows as its own charge.
- Where does the bank's NSF fee go on Schedule E?
- It has no line of its own, so it usually goes on line 19, other expenses, which covers ordinary and necessary expenses not listed on lines 5 through 18. Confirm with your tax preparer.
- Is a bounced rent payment income?
- Not when it bounces. On the cash method, rent is income when you actually or constructively receive it, so only the replacement payment counts.