Rental Property Investor · St Louis, MO · Member since 2010 · 317 posts · 72 votes
I asked a similar question earlier today about putting a rental property in service and deducting the costs of the rehab on Schedule E. Okay, looks like I can't deduct the make ready costs and I can tally the improvements made and increase my depreciation basis (at least that is my understanding at this moment). Fine. But how would I enter in any expenses in QuickBooks that are associated with a non-flip rehab for a rental property that has yet to be put into service? Would it be the same 1040 Schedule E tax lines, such as supplies, repairs, mortgage interest, insurance, cleaning and maintenance, but then I would just not claim them at tax time? Would I just eat 100% of these costs with no tax deduction? Am I wasting my time keeping meticulous notes and spreadsheets for tax purposes? I sense I am missing something with rehab costs.
So yeah, how would I make those QuickBooks entries?
Accountant/Real Estate Investor · Tigard, OR · Member since 2013 · 21 posts · 8 votes
9y
Paul Winka any costs associated with increasing your basis and to be capitalized will be posted to your fixed asset account on your balance sheet, not as an expense on your P&L. This can either be done by doing a journal entry to move the costs or by coding each check or invoice as they are entered to the fixed asset account. Once the asset is placed in service the depreciation will begin.
Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes
9y
Paul, if you plan to keep your rentals and not flip them, then any expense involved would be considered an expense account and you would link it to this home via the Class Feature in QuickBooks. (You would setup your property as a Class, also as a Customer, but in the Chart of Accounts you would set it up as a Fixed Asset......But Expenses (if you plan to keep it and not flip it) would be an expense account, and an expense and you can claim any expenses to this home right away and thereafter, if you put more money into the house.
Now, if you plan to flip you will setup that property as a Fixed Asset Account in your Chart of Accounts, just like you would do if you planned to keep this house. The only difference is, that this time all expenses will be listed as a sub account of his home, this way QuickBooks will keep adding any expenses you pay out to rehab this house to the purchase price of this home, and will become the total value of this home when it is time for you to sell.
It is only when you SELL this home that you will get credit for all the expenses you had to pay.
It is when you sell this house that you will then transfer your Fixed Asset Account to a Cost of Good Sold Account, via a Journal Entry. This COGS Account will automatically deduct the price of the house, along with the expenses involved, from the selling price of the home. This gives you an actual profit that you made from the home, and the amount you will pay taxes on.
Once again, by transferring your home from the Fixed Asset Account by using the COGS Account, will allow QuickBooks to automatically deduct your expenses from the selling price of your home. And that will be the amount you will turn over to your CPA during tax time. This will be part of your Profit and Loss and Balance Sheet Reports, which you will turn over to your CPA at the end of the year.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
9y
May I get clarification @Account Closed
I understand costs used to put a property into service that are added to the cost basis such as painting, new doors, etc. If you pay someone to do chores such as cleaning or mowing the lawn, wouldn't these be expensed out rather than added to the cost basis? Correct?
Retired Landlord/Author · Commerce Township, MI · Member since 2012 · 1k+ posts · 1k+ votes
9y
Yes, minor things like that are general expenses. Focus on Capital Gain expenses, things that appreciate the house. If you throw something that doesn't belong into the Fixed Asset Expense part of your Chart of Account, your CPA or Accountant will catch it. That is why we pay them the big bucks...:) This doesn't mean you just toss anything you want there as an expense. But if you just happened to throw in lawn care or cleaning, you would get a call from your CPA....
One more thought. Let's say you purchased a home that was in a fire. And you needed to hire a restoration firm, cleaning, etc. That part would be, in my opinion, part of the Fixed Asset Expenses.