Red Flag 1: You Do Not Have a Depreciation Schedule for Each Rental Property

A depreciation schedule is one of the most important records for a rental property owner. It shows the assets being depreciated, the placed-in-service dates, cost basis, recovery periods, prior depreciation, and current-year depreciation.

If you do not have a depreciation schedule, it can be hard to know whether depreciation was missed, calculated incorrectly, or assigned to the wrong asset. It can also make future tax planning more difficult when you sell the property, replace assets, convert use, or review prior-year returns.

Red Flag 2: Land and Building Value Were Not Clearly Separated

Land is generally not depreciated, while the building and certain qualifying assets may be depreciated over time. If the entire purchase price was treated as one number without a reasonable land and building allocation, your depreciation may need to be reviewed.

A proper review may look at the closing statement, property tax assessment, appraisal, purchase contract, and other available information to determine whether the tax return used a reasonable basis allocation.

Red Flag 3: Repairs and Improvements Were All Treated the Same

Repairs and maintenance are not always treated the same as improvements. A minor repair may be currently deductible, while a major improvement may need to be capitalized and depreciated. Common examples that deserve review include flooring, roof work, kitchen remodels, bathroom remodels, HVAC replacements, plumbing work, and electrical upgrades.

The issue is not just the dollar amount. The facts matter. Did the work improve the property, restore it, adapt it to a new use, or form part of a larger renovation? Those details can change the tax treatment.

Red Flag 4: Furniture, Appliances, or Renovation Assets Were Lumped Into the Building

Rental owners often buy appliances, furniture, equipment, smart locks, security systems, hot tubs, and other items for a rental property. For Airbnb and furnished rental properties, these purchases can be significant.

When everything is lumped into the building, the tax return may not reflect the correct asset detail. In some cases, a property may also deserve a cost segregation readiness review, especially when there was a major purchase, renovation, remodel, or furnished short-term rental setup.

Small Business Accounting Inc. does not prepare engineering-based cost segregation studies in-house. When appropriate, the firm can help you understand whether a formal study may be worth exploring, coordinate with a qualified third-party provider, and properly use the final report for tax planning and filing.

Red Flag 5: Rental Income Does Not Reconcile to 1099-K, Airbnb, VRBO, Bank, or Property Manager Records

Rental income should be reviewed against the records that support it. For long-term rentals, that may include leases, rent rolls, bank deposits, and property manager statements. For Airbnb and short-term rentals, that may include platform reports, 1099-K forms, gross booking reports, cleaning fees, guest refunds, cancellations, and payout deposits.

One common issue is double-counting platform payouts. Another is reporting only the net deposit without reviewing platform fees, refunds, and taxes. A third issue is missing income that was deposited into a different account.

Red Flag 6: Mortgage Payments Were Deducted Without Splitting Principal, Interest, Taxes, and Insurance

A full mortgage payment is not usually one tax deduction. Part of the payment may be interest, part may reduce the loan principal, and part may go to escrow for property taxes or insurance. If the full payment was entered as mortgage interest or repairs, the books and tax return may need cleanup.

This is especially common when rental bookkeeping is done from bank feeds only and the mortgage payment is categorized quickly without reviewing the lender statement or Form 1098.

Red Flag 7: Airbnb, Personal Use, Passive Loss, or Bookkeeping Issues Were Not Reviewed

Short-term rentals can create additional tax questions. Personal use days, rental days, average guest stay, material participation, local tax obligations, cleaning and co-host payments, platform fees, supplies, and furniture tracking may all affect the final reporting position.

Bookkeeping can also create problems when owner transfers are recorded as income, owner draws are recorded as expenses, security deposits are treated incorrectly, or expenses are not separated by property.

If your rental books have large uncategorized expenses, negative loan balances, unclear transfers, duplicate income, or missing property-level tracking, it may be better to clean up the books before tax preparation rather than trying to fix everything during filing.