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JRBv3
Level 2

How do I keep mortgage and interest off the company books for an owner-occupied duplex?

One of my properties is an owner-occupied duplex. 2 units, same size. 50/50. I know how to split the mortgage into separate Classes and interest into separate expense accounts but doing so still leaves everything on the same Reports. Is there a way to set up the Chart of Accounts to keep these "off the books" or neutralize them out in some way? Right now I'm using a single Mortgage account but splitting the transaction in half by Class. The Expense accounts are separate but, of course, they both still affect all the Reports, etc.
Solved
Best answer March 09, 2019

Best Answers
Rustler
Level 15

How do I keep mortgage and interest off the company books for an owner-occupied duplex?


@john-pero wrote:

You do not need to split the principal portion of the payment as long as you split the interest and depreciation. Instead of splitting it by Class your personal share should be equity. Any money out of business to or for you is owner draw and so if interest is $6000/ yr then $3000 is interest expense and $3000 is owner draw. Same with depreciation,  taxes and other expenses. The duplex is still a single class but you split at the account level


I would quibble on the point of splitting depreciation, you do not depreciate personal property

When this asset was set up, only half of the mortgage and down payment should feed the fixed asset for the rental portion, the other half is equity draw. and the full amount of the mortgage is the liability offset

then the rental half needs to be broken down in the chart of accounts, all these fixed assets type accounts
12234-B some street
>> land
>> improvements (building, landscaping, etc)
>> >> accumulated depreciation improvements

Then depreciation is only calculated on the cost of the improvements for the rental portion.


Insurance is another issue

If you have landlords insurance for just the rental portion, then the premium is an expense

however, if you have a homeowner policy that covers the whole building, then half that premium is an expense

 

Taxes of course is 50/50

View solution in original post

3 Comments 3
john-pero
Community Champion

How do I keep mortgage and interest off the company books for an owner-occupied duplex?

You do not need to split the principal portion of the payment as long as you split the interest and depreciation. Instead of splitting it by Class your personal share should be equity. Any money out of business to or for you is owner draw and so if interest is $6000/ yr then $3000 is interest expense and $3000 is owner draw. Same with depreciation,  taxes and other expenses. The duplex is still a single class but you split at the account level

Rustler
Level 15

How do I keep mortgage and interest off the company books for an owner-occupied duplex?


@john-pero wrote:

You do not need to split the principal portion of the payment as long as you split the interest and depreciation. Instead of splitting it by Class your personal share should be equity. Any money out of business to or for you is owner draw and so if interest is $6000/ yr then $3000 is interest expense and $3000 is owner draw. Same with depreciation,  taxes and other expenses. The duplex is still a single class but you split at the account level


I would quibble on the point of splitting depreciation, you do not depreciate personal property

When this asset was set up, only half of the mortgage and down payment should feed the fixed asset for the rental portion, the other half is equity draw. and the full amount of the mortgage is the liability offset

then the rental half needs to be broken down in the chart of accounts, all these fixed assets type accounts
12234-B some street
>> land
>> improvements (building, landscaping, etc)
>> >> accumulated depreciation improvements

Then depreciation is only calculated on the cost of the improvements for the rental portion.


Insurance is another issue

If you have landlords insurance for just the rental portion, then the premium is an expense

however, if you have a homeowner policy that covers the whole building, then half that premium is an expense

 

Taxes of course is 50/50

View solution in original post

JRBv3
Level 2

How do I keep mortgage and interest off the company books for an owner-occupied duplex?

Great feedback and this makes sense to me. What's the "cleanest" way to track this in Quickbooks considering I track the business only? I don't use it for the personal side. I only see two options. Create the fixed asset and mortgage at half and then input everything halved as well. Nothing would match reality but it would correctly show the assets/liability amounts. Input the asset and mortgage accurately and then input amounts split between draw and business accounts. Use a journal entry to offload half the asset and liability into draw somehow? In short, should I forget about reality and just input the property as half in the first place and account for it that way or input the property as it really is and use some form of accounting entries such that the assets/liabilities/payments all report out properly? I understand this is subjective and, I believe, one could do it either way, but not sure if there's any wisdom as to which provides a better outcome before I go to far down the road either way.
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