Record Owner Finance Land Sale in Quickbooks

[Brock Roorda]

Hello,

We had some land that we purchased earlier this year and went through the platting process with the county to subdivide.  We sold a few parcels off already in a traditional fashion but I have one that has me scratching my head on exactly how to record in QuickBooks.

I am unsure of how to record the parcel that we just sold for $165k where we we offered owner financing note of $135k as interest only with a 36 month balloon. (Texas attorney drafted up the note documents and the transaction went through a Title Company).

My uncertainty is in QuickBooks and is around the recording of the sale.  I understand the normal Debits/Credits.  For the $135k owner financed note, do I start by creating an item in my chart of accounts as an “Accounts Receivable” or should it be an “Other Asset” or something else and then what should the tax-line mapping be set as?  We operate on a cash basis and since we did not take in this $135k as cash this year I am not certain what I would need to change so that it does not show as net profit on the P&L Statement.  (Obviously we would record interest payments as income when they come in).

Thanks in advance to any of you QuickBooks/Real Estate gurus.

[Don Konipol]

Quote from @Brock Roorda:

Hello,

We had some land that we purchased earlier this year and went through the platting process with the county to subdivide.  We sold a few parcels off already in a traditional fashion but I have one that has me scratching my head on exactly how to record in QuickBooks.

I am unsure of how to record the parcel that we just sold for $165k where we we offered owner financing note of $135k as interest only with a 36 month balloon. (Texas attorney drafted up the note documents and the transaction went through a Title Company).

My uncertainty is in QuickBooks and is around the recording of the sale.  I understand the normal Debits/Credits.  For the $135k owner financed note, do I start by creating an item in my chart of accounts as an “Accounts Receivable” or should it be an “Other Asset” or something else and then what should the tax-line mapping be set as?  We operate on a cash basis and since we did not take in this $135k as cash this year I am not certain what I would need to change so that it does not show as net profit on the P&L Statement.  (Obviously we would record interest payments as income when they come in).

Thanks in advance to any of you QuickBooks/Real Estate gurus.

You are actually asking two questions.  One concerns accounting for the sale of property and creation of a note secured by said property.  The other is the same but for income tax purposes.
First, your accounting should be done in the way that best “describes” the subject transaction.  You sold a property for a certain price.  That price, less any associated closing costs, is revenue.  That revenue may consist of cash, a note, or a combination of both.  The note is an “other asset”.  Quickbooks does not have a good platform for note servicing and accounting, but can be functional if you are accounting for only one or two notes.  If you hold a note portfolio you would probably want a specialized note accounting and or servicing  software program.  
As to the tax implications adjustments may or not be made to Quickbooks reports when tax returns are filed.  Whether or not for tax purposes the note portion is recognized as a capital gain or ordinary income for the amount above cost basis, is a function of many different things.  Such as whether you purchased the property as an active investor, passive investor, or are in the land acquisition and sales business.  Whether you personally participate or not in the subject business.  How many hours per year you spend in any real estate businesses.  It all gets extremely complicated, and doesn’t necessarily seem logical, but it’s the tax code.  The best time to employ a knowledgeable tax professional is yesterday.  The second best time is now.  The worst time is after the tax year ends.