Closing costs associated with purchase of rental property

@jenakason 

"First, are all the accounts I've established accurate?"

You're close.  There is no need to make an entry for the buyer credit.  Also, just to confirm, settlement fees/closing costs should be included in the basis of the property.  See IRS Pub. 551, page 2. 

"Second, this transaction now shows negative amounts in my chart of accounts for my credit to buyer, down payment funds, and earnest deposit accounts. Do these just stay as is or do I need to zero them out?"

The credit to buyer goes away and reduces your basis in the property.  The down payment should be assigned to the bank account it came from.  If it came from another business, then you should assign that to a liability account since you owe the down payment to that business.  The earnest money, when paid, should have been recorded as an asset if the company paid it and then, when you closed, the $1,000 payment (credit) would have cleared that entry.  If the earnest money was paid by the other company, it becomes part of the liability amount owed.

Did the earnest money and down payment come from the other company?  If so, and assuming the closing costs are non-deductible, the journal entry is below.  If I'm not understanding that correctly, please advise.

Thanks for the info. That does make sense to cancel out the $810 closing cost with the $348.13 credit. I would like to keep the property name (fixed asset) price at $111,000 so I can reference what the purchase price for each property was. Do you have a recommendation for how to classify the additional $461.87? 

@jenakason 

The $461.87 should be part of the fixed asset.  That's the IRS rule.  You can have two separate fixed asset debit lines on the journal entry - one for $111,000.00 and another for $461.87 so you can see the purchase price but they should both post to the same fixed asset account.  The original carrying amount (basis) of the property is $111,461.87, not $111,000.00.  Hope that helps.   

Ok, makes sense.

What about this question?

If the earnest money and down payment funds came from the rental checking account, how would I record this? Keep the general journal entry as I have it and then do a sales receipt or expense to cancel it out?

@jenakason 

"If the earnest money and down payment funds came from the rental checking account, how would I record this? Keep the general journal entry as I have it and then do a sales receipt or expense to cancel it out?"

Sorry, I forgot to address this part.  If the earnest money and down payment came from the checking account, then you should have two separate transactions - one for the earnest money and a second for the closing transaction that includes the down payment.  

1) For the earnest money, write a check in QB and assign your Earnest Deposit other current asset account to the check.  That records the earnest money as an asset account and a corresponding reduction in your checking account.  This should be a separate transaction as it will clear the bank at a different time than the down payment. 

2) The journal entry to record the closing is below.  This will close out the Earnest Deposit asset account that was recorded when you recorded the earnest money check in #1.

I got the earnest money transaction taken care of (through writing a check from the rental company). For the rest of the down payment, it came from our other business, but we won't necessarily be having a loan for it. How would you track it if we essentially took an owner's draw from the other company, and used the funds to purchase the rental property? 

@jenakason 

Replace the credit to loan payable with a credit to the owner's equity account.  The proper entries depend on the business entities.  If they're anything other than sole proprietorships, I would strongly suggest contacting the owner's CPA/tax accountant.