Bookkeeping for rental property: a simple chart of accounts for an apartment building

Why the list of accounts matters more than the software

A chart of accounts is the list of buckets every dollar is sorted into. Software only adds up what is in each bucket. If the buckets are wrong, every report is wrong in the same way: the profit and loss mixes repairs with new roofs, the balance sheet hides the security deposits you owe back, and your tax preparer spends hours re-sorting.

For a rental, two outside reports decide what the buckets should be. The IRS asks individual owners for rental income and expenses on Schedule E, so expense accounts that follow its lines make the return easy. Your lender, and any buyer later, will ask for net operating income, so operating costs need to sit apart from loan payments and big improvements. One set of accounts can serve both.

The accounts, numbered

The usual numbering puts assets in the 1000s, what you owe in the 2000s, owner equity in the 3000s, income in the 4000s and expenses in the 5000s and 6000s. Leaving gaps between numbers lets you add an account later without renumbering.

Then the expense accounts. Each carries the Schedule E line it rolls up to, so the year-end profit and loss is already in the order of the form.

Line numbers are from the 2025 Schedule E. Check the current year's form, since the IRS can renumber lines.

Four accounts owners usually get wrong

Security deposits held is a liability

A deposit you expect to return is money you owe the tenant. The IRS says not to include a deposit in income when you receive it if you plan to return it, and to include the part you keep in the year you keep it (Publication 527). So the deposit goes to account 2100, and only the kept part ever moves to income account 4040.

The mortgage payment is three things

A typical monthly loan payment covers interest (expense 5080), principal (it lowers liability 2500 and is not an expense) and often an escrow amount for taxes and insurance (asset 1200 until the lender pays the bills). Booking the whole payment as an expense makes the building look less profitable than it is and inflates your deductions.

Improvements are not repairs

Publication 527 says you must capitalize an expense that improves the property. Keep those in asset account 1520 instead of repairs 5100. Your tax preparer depreciates them; you only need them in the right place with the invoice attached.

Owner money in and out is not income or expense

When you add $10,000 to cover a new boiler, that is an owner contribution (3010), not income. When you move $5,000 of profit to your personal account, that is a distribution (3020), not an expense.

One month, sorted

Example a made-up 16 unit building collects $21,600 of rent and $340 of laundry money in May, and receives two new deposits of $1,350 each. It pays a $4,980 loan payment ($3,120 interest, $1,060 principal, $800 tax and insurance escrow), $640 for a plumber, $2,400 for a new window set in one unit, and $410 for water. Sorted: income is $21,600 (4010) plus $340 (4030), or $21,940. Expenses are $3,120 (5080), $640 (5100) and $410 (5130), or $4,170. Net income for May is $21,940 minus $4,170, which is $17,770. The $2,700 of deposits goes to 2100, the $1,060 of principal lowers 2500, the $800 goes to 1200 and the $2,400 window set goes to 1520. None of those four touch the profit and loss.

Notice the gap between cash and profit: the bank account moved by $21,940 plus $2,700 in, and $4,980 plus $640 plus $2,400 plus $410 out, a net of $16,210. Profit was $17,770. A chart of accounts that keeps the balance sheet items apart is what lets you explain that gap in one line each.

Habits that keep the accounts clean

1. Keep one set of accounts per property, or per LLC when one LLC owns one building. Do not add a "property" tag to one shared ledger.
2. Resist new accounts. If an account had fewer than three entries last year, fold it into a neighbor.
3. Name the Other account items. "Other: alarm monitoring" is useful; "Misc" is not.
4. Attach the invoice to every improvement and every repair over a few hundred dollars.
5. Close each month: reconcile the bank, check that deposits held equals the deposit list, and lock the month.

The IRS says you must keep records to support what you report on Schedule E (Instructions for Schedule E). A tidy chart of accounts with attached invoices is that record.

How DoorKeeping handles it

DoorKeeping sets up books per property, because one LLC owns one property: each has its own ledger, bank account, deposits held and profit and loss, and its expense accounts already map to Schedule E lines. You ask Claude or ChatGPT where a bill should go or for a month's P&L, and you see all your properties together in the web app. It does not give tax advice, so your tax preparer still decides close calls like repair versus improvement.

Sources

1. IRS, Instructions for Schedule E (Form 1040), 2025, read Oct 29, 2026
2. IRS, Publication 527, Residential Rental Property (2025), read Oct 29, 2026

Questions

How many accounts should a rental property chart of accounts have?

For one apartment building, 30 to 40 is plenty: a handful for cash, deposits, the loan and equity, a few income accounts, and one expense account per Schedule E line plus improvements.

Is the mortgage payment an expense in my books?

Only the interest is. Principal lowers the loan balance, and any tax and insurance escrow is held by the lender until it pays those bills.

Where do security deposits go in a chart of accounts?

In a liability account such as Security deposits held. Move only the part you keep to an income account, in the year you keep it.