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tennesseejb
Level 1

Rental Rehab Expenses that Span Calendar Years

So I'm moving to Quickbooks (Desktop 2020) for our rental property business, and we have a rehab that has been underway since last year (that's a whole different discussion).  But as I was catching up the books, I ran into a situation and was hoping the community could help me understand it. 

 

I'm tracking rehab expenses against non-inventory parts so that I can categorize them on a report to compare to budget.  So I've created items for each category that I budget against. I can then pull a P&L by Class and I'll see the total booked to my Rehab Expenses In Progress (from the chart of accounts) and then if I drill into that number I can total by Item Detail and it gives me a nice breakdown. 

Because these aren't truly expenses in the long run, as they will go to Basis when the property is put into service, I'll end up making journal entries to move them to the Asset at some point.  I think that part works as I would expect it to. 

 

The problem is that I had expenses last year and even though for everything else I've treated QB as starting balances on 1/1/2020, I tried entering these expenses as in 2019, just so I could reflect them in the year they occured.  I'm not sure that this matters, since I'm not deducting them as expenses, since they will go to the asset, but it just felt more "accurate?". But apparently quickbooks automatically converts expenses to equity at the end of the year, so when I go look at the journal entry created from the expense I created, it has it going to owners equity.  Which then makes it a) not show up properly on my report and b) makes the journal entry more difficult.  

 

Hoping from the community to understand: 

1. Am I describing normal behavior for Quickbooks when adding expenses from prior year? 

2. Any suggestions for how I could manage my process differently?  Am I missing a step somewhere? 

3. Is there a better way? These expenses are mostly being paid out of my personal account, so I could just enter them as journal entries straight to the Asset Improvement account, but I like seeing the breakdown by type (electrical, plumbing, etc.). 

 

Thanks in advance!!!

4 Comments 4
john-pero
Community Champion

Rental Rehab Expenses that Span Calendar Years

1. It is net profit or los that is posted to retained earnings equity and tgat is by design so tgsst each year starts fresh.

 

2. These are not expenses and by recording them as such caused what you see. You should post the rehab expenditures to a Work in Progress (WIP) current aset account or directly to the property fixed asset as tgat is whose value is increasing by what you spend. Using a WIP allows you to track the progressvof the rehab and you can convert this cost when complete to the property  building asset by journal entry.

 

It is a little trickier if the property was already in service and tge remodel improves an existing rental in which case the improvements get tgeir own line on the dep reciation schedule

 

3. Mostly see 2 above but record your personal funds as owner equity contribution

tennesseejb
Level 1

Rental Rehab Expenses that Span Calendar Years

Thanks @john-pero 

 

I was origionally going to post them to a WIP current asset account (I was going to call it Rehab in Progress but I don't think that matters).  But the disadvantage there is I lose the ability to categorize them.  Is there a way other than notes to see and later report on the transactions in the WIP account? 

GlinetteC
Moderator

Rental Rehab Expenses that Span Calendar Years

Thanks for getting back to us, tennesseejb.

 

Regarding your concerns on how to handle the transactions, I would suggest consulting with your accountant for guidance to see what's the best way to do with these transactions on the later report. This is to ensure the accuracy of your books. 

 

You may consider visiting this site Find a ProAdvisor to help you find a certified expert in your area.

 

If you have any other concerns, please click the Reply button. I'll be around to assist.

john-pero
Community Champion

Rental Rehab Expenses that Span Calendar Years

To categorize them you can use Class Tracking, creating a Class for each single category of the rehab you wish to keep track of, such as Framing, Drywall, New Wiring, New Plumbing, HVAC, New Roof, etc.  Pulling up a P&L By Class and then filtering the Accounts to show All Equity Accounts rather than the default All Income/Expense Accounts may give you the information on the various categories of the project.

 

Another option is to create Jobs and Sub-Jobs. Each category could be a JOb under the main "customer", which would look something like

123MAINREHAB:Roof

123MAINREHAB:Plumbing

123MAINREHAB:Construction

123MAINREHAB:Construction:Drywall

 

Note the last example which creates a sub-sub job (you can go a total of 5 deep counting the top)

There are several Jobs profitability reports, in fact there are Jobs reports of Actual vs Estimate so here you could actually enter your budget for the project as Job Estimates, creating Invoices from the Estimates as the job progresses and money is spent.  Here, again, you can customize the Jobs reports to filter for equity accounts, which will show your WIP transactions

 

 

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