Chicago Landlord & Rental Property Tax Prep, Bookkeeping & Accounting
Schedule E done right, depreciation claimed in full and clean books for every unit. We work with owners of Chicago two-flats, condos, single-family rentals and small portfolios, plus short-term rental hosts.
Does this sound like you?
- You live in one unit of a two-flat or three-flat and rent the rest
- You own a condo or house you rent out, maybe one you used to live in
- You have a few units and the books live in a spreadsheet
- You host on Airbnb or VRBO and are not sure what Chicago expects
- You are not certain depreciation was ever set up correctly
- You want to know if an LLC or a 1031 exchange makes sense
Certified on the platforms our clients use
Most landlords overpay, and it is rarely the obvious things
A rental is one of the most tax-favored assets a person can own, but only if the return is built correctly. In our experience preparing returns for Chicago property owners, the money is usually lost in three places: depreciation that was never set up or was based on the wrong figure, repairs that were written off over 27.5 years when they could have been deducted in the year they were paid, and owner-occupied two-flats where the personal and rental portions were never split properly.
Heard & Associates LLC prepares federal and Illinois returns for landlords and keeps per-property books so every number on Schedule E can be traced to a bank line. We also handle the questions that come up between filings: whether to move a property into an LLC, when a 1031 exchange makes sense and how to prepare for a sale.
Real estate agents and investors who flip or develop have their own page, real estate tax and accounting. This page is for people who hold property and collect rent.
Tax and accounting services for Chicago rental property owners
From a single condo to a small portfolio, the same rules apply. We make sure they work in your favor.
Schedule E Tax Preparation
Rental income and expenses reported per property, with mortgage interest, taxes, insurance, repairs, management fees and depreciation each in the right line, plus the Illinois return.
Individual tax preparation →Per-Property Bookkeeping
Rent, deposits, vendor payments and mortgage escrow tracked by unit, reconciled monthly, so you know what each building actually earns and your return is ready in January.
Bookkeeping services →Depreciation and Cost Basis
We set up the depreciation schedule from purchase documents, separate land from building, add improvements as they happen and keep the records a future sale will depend on.
Tax advisory →Owner-Occupied Two-Flats
Living in one unit and renting the other means splitting mortgage interest, taxes, utilities and repairs between Schedule A and Schedule E, every year, in the right proportion.
Individual tax preparation →Short-Term Rental Hosts
Airbnb and VRBO income with the city registration, hotel taxes and the personal-use rules that decide whether it goes on Schedule E or Schedule C.
State and local tax →LLCs, Sales and 1031 Exchanges
Entity setup for your rentals, gain and depreciation recapture calculations before you list, and exchange planning when you want to trade up without a tax bill.
LLC formation →The numbers behind a rental property return
Residential rental buildings are depreciated over 27.5 years, and only the building, not the land. In Chicago, where land can be a large share of what you paid, getting that split right changes your deduction every year for decades. Improvements such as a new roof or kitchen are added to the schedule and depreciated. Ordinary repairs and small purchases are deducted in the year paid, and the de minimis safe harbor lets many items under $2,500 be expensed outright.
Rental losses are passive, but landlords who actively manage their property and have modified adjusted gross income of $100,000 or less can deduct up to $25,000 of losses against wages each year. That allowance shrinks above $100,000 and disappears at $150,000. Losses that cannot be used are not lost. They carry forward and are released when the property is sold.
What Chicago landlords can deduct
Most of these are straightforward once the books are clean. The hard part is keeping the records that prove them. We track each one by property all year.
- Mortgage interest and property taxes, split for owner-occupied units
- Depreciation on the building and on capital improvements
- Repairs, maintenance and cleaning between tenants
- Insurance, including landlord and umbrella policies
- Property management and leasing fees
- Utilities you pay, and the rental share of shared utilities
- Advertising, tenant screening and legal fees
- Travel to the property, and a home office if you manage from home
- HOA dues on rented condos
- Accounting and tax preparation fees
Two Chicago rules landlords ask us about
Security deposits. Under Chicago’s Residential Landlord and Tenant Ordinance, deposits must be kept in a separate account and interest paid to the tenant each year at the rate the city sets. Deposits are not income when received, so the books need to show them separately from rent.
Property taxes. Cook County reassesses on a cycle, and assessment appeals can lower the bill. We do not file appeals, but we track the tax paid, the refunds and the reassessment timing so your return and your cash flow reflect them.
Review my rental deductions →Three Chicago landlord situations we see every season
The owner-occupied two-flat
You bought a two-flat in Bronzeville, live upstairs and rent the garden unit. Half the mortgage interest and property tax go on Schedule A as personal deductions, half go on Schedule E against the rent. The roof you replaced is depreciated on the rental half only. Get the split wrong one year and every later year inherits the error.
The condo you used to live in
You moved to the suburbs and kept the Lakeview condo as a rental. Depreciation starts at the lower of what you paid or what it was worth when you converted it, and the clock on the home sale exclusion starts running out. We set the basis correctly and tell you how long you have before selling costs you the exclusion.
The Airbnb that became a business
A spare unit rented by the night is not treated like a yearly lease. Chicago requires a shared housing registration, hotel accommodations tax applies to stays under 30 days and, if you provide hotel-style services, the income may belong on Schedule C with self-employment tax. We sort out which rules apply before the first 1099-K arrives.
What to look for in an accountant for rental property
Any preparer can type rent into Schedule E. These are the things that separate a filed return from a correct one.
Rental property experience
A depreciation schedule you can see
Planning before a sale
Chicago and Cook County knowledge
Reachable between filings
How we onboard a rental property owner
Property review
We go through each property: purchase documents, prior returns, improvements and how it is used.
Fix the foundation
Depreciation schedules are corrected or built, and books are set up by unit.
File federal and Illinois
Schedule E, any Schedule A split, state return and short-term rental filings prepared together.
Plan the year
Estimated taxes, reassessment timing and any sale or exchange on the horizon are mapped out.
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Property owners and small business clients describe a team that explains the numbers, answers quickly and gets returns right the first time.
Rental property tax questions
Every property is different. If your question is not here, ask us during a consultation.
Book a consultation →Do I need an accountant for one rental property?
One property is where most depreciation mistakes start, because the basis, land split and improvement records are set in year one and carried forever. A single review when you start renting, then an annual return built from clean records, usually pays for itself through deductions that software and first-time filers miss.
How is rental income taxed in Illinois?
Net rental income flows from your federal Schedule E to your Illinois return and is taxed at the flat 4.95% rate. Illinois does not tax rental income separately, but owners of their own home can claim a credit for part of the property tax paid on the owner-occupied portion.
What is depreciation and why does it matter?
Depreciation lets you deduct the cost of the building, not the land, over 27.5 years even though you did not spend that money this year. On a typical Chicago two-flat it is often the largest deduction on the return. When you sell, the depreciation you claimed, or could have claimed, is recaptured, which is why the schedule needs to be right from the start.
Can I deduct rental losses against my salary?
If you actively participate in managing the property and your modified adjusted gross income is $100,000 or less, you can deduct up to $25,000 of rental losses against other income. The allowance phases out between $100,000 and $150,000. Unused losses carry forward and are released when you sell the property.
Should I put my rental property in an LLC?
An LLC can separate rental liability from your personal assets, but it does not change your income tax, since a single-member LLC is still reported on Schedule E. Transferring a mortgaged property can also trigger lender and transfer tax questions. We walk through the tradeoffs with you and your attorney before you decide. See our LLC formation service.
How does an owner-occupied two-flat get reported?
Expenses are split between the unit you live in and the unit you rent, usually by square footage. Your share of mortgage interest and property tax goes on Schedule A if you itemize, the rental share goes on Schedule E, and only the rental share of the building is depreciated. Repairs to the rental unit are fully deductible; repairs to your unit are not.
What taxes apply to an Airbnb in Chicago?
Hosts must register with the city under the shared housing ordinance, and stays under 30 days are subject to Chicago and Cook County hotel accommodations taxes plus city surcharges, which platforms often collect. Federally, if you rent the unit for 15 days or more and provide only basic services, the income goes on Schedule E; substantial services can move it to Schedule C.
What is a 1031 exchange and does it apply to a small landlord?
A 1031 exchange lets you sell a rental and buy another investment property without paying tax on the gain now, as long as you follow strict timelines and use a qualified intermediary. It works for a single condo as well as a large building. We model the tax you would otherwise owe so you can decide whether the exchange is worth the effort.
Do you handle the bookkeeping or just the tax return?
Both. Many landlords come to us for the return and move to monthly bookkeeping once they see how much faster and cleaner tax time becomes. If your records are behind, our bookkeeping cleanup service rebuilds them from bank statements first.
Get your rental property taxes right this year
Bring last year’s return and your closing statement. We will show you what the depreciation schedule should look like and what the return may have missed.