Bookkeeping and House Hacking: to commingle funds or not?

3 Replies

Brief intro: bought a house last year, have been renting out 2 spare bedrooms. I'm thinking about setting up a separate business account to deal specifically with all house related expenses (mortgage, taxes, utilities, saving for CapEx). The major downside of this is that it will likely negatively affect my DTI (without rental income = high 40s, with rental income = mid 30s). I decided to wait until I could file income taxes this year before considering which direction to take.

So I'm looking for y'alls input - who has set up a business account for their house hacking, and who hasn't?  How do you think it's affected your available credit and your future investment planning?  Any more information you'd need to know before you would feel comfortable offering advice?

I set up separate personal checking accounts to handle rentals. Business accounts, NO. I owned businesses through the years, have several business accounts, but have yet to do it for rentals.

Using business accounts will have no impact on your taxes or the way your credit will be analyzed. I worked in consumer credit for a few years. One downside of business accounts is for the longest time, I cannot electronically transfer funds to my personal accounts without a fee and hassles, though recently I was able to do that via Capital One. Business accounts cost more in fees. For my personal accounts, depending on whether it's grouped with 401K's in wealth accounts, they give you plenty of perks and personal bankers assigned to you. In fact, at Chase and Citi where I had wealth accounts, Chase called me to wish me a happy birthday, and Citi send me an e-card.

But for business accounts, where till recent times I did the books for a local non-profit, banks have a "know your customer" program mandated under federal law, call you in, and quiz you like a criminal. This particularly so if you deposit lots of monies in cash, so if tenants pay in cash, you'll be under suspicion. We had a checking account closed because the bank didn't know we had 3 checking accounts, my boss when in for an interrogation and didn't mention the 3rd, so the bank closed the account on us because no one bothered to contact them on that account for the "know your customer" interrogation. Because city who funds the program requires a separate checking account for charitable contributions, the $30,000 check they sent to us after they closed the account was in my desk for several weeks till we figure this out and have the checking account re-opened. This was Citi, and we considered moving to Capital One as I though they were more business friendly. For the record, that's my opinion.

I doesn't really matter if you use a separate account or not. Your DTI is your DTI. Lenders and the IRS are looking at the big picture not just what you have in your "business" account should you set one up. It would really just be to help you keep all expenses under one account.

I have for years lived in a house hack.  I do have a separate account for all house related expenses.

What you really need to do is track everything for your accountant.  I'm not sure how it works when you are renting out bedrooms, you would have to ask your accountant. 

I use quickbooks (but you could use excel) and track all my income and expenses relating to the house.  I have it set up as classes in QB, one for the whole house, one for the rental portion, and one for the owner occupied portion.

I am using 50% of the house for personal use, so my accountant can deduct 50% of my "whole house" expenses, things like taxes, the water bill, mortgage interest. Repairs or maintenance or costs relating to the rental portion can be deducted 100%. and of course the costs relating to my personal portion are not deductions. Make sense?

@Kenneth Westervelt At an accountant's perspective, commingling is strongly discouraged. A separate bank account is recommended, it does not have to be business, it can be under your personal name but set it up to use exclusively for your house hacking transactions (rent, utilities, repairs, mortgage, taxes, insurance, etc).  When I say exclusively, I mean do not deposit or pay anything associated to the house directly to/from a different account or pay/deposit personal transactions using your house hacking bank account. If you need to transfer funds between accounts, you can do so.  It will save you and your accountant headache comes time to put together the numbers.