Real Estate Broker · Greenville, SC · Member since 2013 · 269 posts · 141 votes
Hey BP! I'm currently mid-way through my first rehab, planning on building a scale-able business and turning over at least 5 properties next year.
Up until now my Chart of Accounts in Quick Books has been set up to handle accounting for my rental properties, but now that I am entering the flipping space I need to make some adjustments.
I'm wondering if I should count the purchase and all materials/labor as WIP and then move those costs over to COGS at the time of sale? Or, would it be easier to enter everything as COGS upfront, and at the end of the year move everything from COGS to WIP for any properties that will carry over into the next year?
Also, what is the best practice for identifying properties for reporting purposes? For my rental accounting I currently set each property up as a Customer and a Class, with tenants as Jobs. Is there a better way to do this for flipping, or will the same system work?
There is a always a different and easier way. Which ever step you take to enter details in QuickBooks - remember that you should enter the transaction only once. Secondly you should always think about how you want the reports to be reflected and how you look at your financials. If you add it to COGS and you sell the property next year, at the time of filing your reports will be inaccurate and your tax returns. Your Net Worth is wrong. You will not have a clue what your assets and liabilities are.
Best practices to use QuickBooks for real estate industry is to use Classes for each property. You can get quick reports - summary and details by each property. Profit & Loss by Class report and Balance Sheet by Class.
There is a always a different and easier way. Which ever step you take to enter details in QuickBooks - remember that you should enter the transaction only once. Secondly you should always think about how you want the reports to be reflected and how you look at your financials. If you add it to COGS and you sell the property next year, at the time of filing your reports will be inaccurate and your tax returns. Your Net Worth is wrong. You will not have a clue what your assets and liabilities are.
Best practices to use QuickBooks for real estate industry is to use Classes for each property. You can get quick reports - summary and details by each property. Profit & Loss by Class report and Balance Sheet by Class.
Investor/Accountant/Builder · Meno, OK · Member since 2014 · 1k+ posts · 918 votes
12y
We expense everything on a flip(also for a rental/rehab) and "if" it carries over to the next year we do a JE - db Capitalize cost cr capitalized expense. To show zero cost for the year. Reverse entry in the next year. For the rental/rehab we don't show anything for tax purposes until the year we get it ready to rent. All original rehab is capitalized.
We use a customer for each house. No classes. And we don't use jobs for the Single family houses, too cumbersome. We do use jobs for apartment units. The customer is the apartment and the units in the apartment are the jobs.
For tax purposes I just need income and expenses per building/complex.
Investor · Pawleys Island, SC · Member since 2008 · 1k+ posts · 837 votes
12y
I don't use Quickbooks, but for income tax reporting, all the money directly spent on a flip property is accrued until the property is sold, at which time the accrued amount becomes the COGS for that property. Additionally, for the flip property purchased in a prior year, the income tax acquisition date for the property is Jan 1 for the year of sale.
I would make sense, then, to keep everything in a property specific WIP until the property is sold. At the time of sale, WIP becomes COGS for that property.
Honestly, that's just way too much accounting for me. Look up or have a tax professional explain to you the Completed Contract Method. IRS has an Audit Strategy Guide you can download (I think its the "Construction Industry" one) that explains it as well, more or less.