The IRS requires that almost all funds you receive from tenants be recorded as revenue. This includes payments for utilities and cleaning fees for short-term rentals. The few exceptions to this rule include security deposits and some short-term occupancy taxes.
So, if your tenants pay you for utilities, you must book those funds as revenue. You are welcome to use the Tenant Fees account or update the chart of accounts and create a new revenue account if desired.
If you are subscribed through TurboTenant or RentRedi and these payments are processed through their systems, these should be booked as Partner Deposits. Read more here:
Booking tenant utilities to its own account or sub-account can help you see and understand your revenues better. However, that separation is not a requirement for your taxes. The IRS Schedule E only has one revenue category for rentals — Rents Received. So, ultimately, at tax time, all of your revenues will be rolled together on a per-property basis.
Make sure you continue to book the utility bills you pay as expenses to offset the revenue you are entering from tenant utility payments. This ensures a net zero impact on your taxable income.
Understanding Utility Reimbursements
Utility reimbursements occur when tenants repay you for utility expenses that you initially covered. These transactions need to be reflected in your financial system to ensure your income and expenses are accurately reported.
Step-by-Step Guide to Recording Utility Reimbursements
Here’s how you can record utility reimbursements:
Entering the Initial Expense: - Record the upfront payment made from your account to pay the utility bill as an expense by booking the transaction in your import feed. This ensures the transaction appears as part of your financial records. - For example, categorize this under the Utilities expense account.
Recording the Reimbursement: - When the tenant reimburses you, record this to offset the original expense. There are two main options for categorization. Either method ensures that the expense and the reimbursement cancel out, reflecting a net-zero impact on your income. We recommend choosing one option and consistently booking transactions in that fashion:
Most commonly, you can record it as a "Refund Received" transaction to lower the balance of the Utilities expense account
Alternatively, you can create a new revenue account called "Utility Revenue" to categorize it. This will show the full balance of the Utilities expense account, and show the Utility Revenue separately. The revenue should cancel out the expense.
Key Takeaways
Always record utility payments as expenses first.
Record reimbursements either as refunds or revenue, ensuring both transactions balance out.
If automated imports are unavailable, switch to manual entries and use recurring templates for efficiency.
By following these guidelines, you can ensure accurate and up-to-date financial records, preventing discrepancies and simplifying your accounting process.
Still have questions? Reach out to our Support Team via email at [email protected] or call us at (888)939-6865.