I purchased a rental property and performed some major renovation to the property. What are some of the best practices to keep track of the rehab expenses? For example, I purchased $3,000 materials (e.g., cabinets) and spent $2,000 in labor to renovate the kitchen. Do I set up a WIP account to keep track of the materials and labor spent overtime, and once the kitchen renovation is complete, I will move those costs from WIP to Fixed Asset and start depreciation? Alternatively, do you use Items or Customers: Job to keep track of those expenses? Thanks in advance for any suggestions.
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Yes, a WIP current asset account is probably the best way to track the ongoing rehab expenses and when done transfer the balance to the property building asset. As I explained in another post, you will already have determined the separate land value so the WIP value is added to the building value. And you start depreciation of the entire building the month when it is complete and ready to rent, which is called "in service".
Yes, a WIP current asset account is probably the best way to track the ongoing rehab expenses and when done transfer the balance to the property building asset. As I explained in another post, you will already have determined the separate land value so the WIP value is added to the building value. And you start depreciation of the entire building the month when it is complete and ready to rent, which is called "in service".
Hi John, I was looking at the topic. I agree with your suggestion. My question is regarding the labor part of the improvement. If you pay over $600 you should issue 1099. How will you account for that part? Usually you have an expense account - contractor (debit side) and credit side how you pay the contractors. If you capitalize the labor under building cost you wont be able to use contractor account. I am doing a partnership tax return where the client pay the contractors ovr $600 for improvements but not contractor expense account was used
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