We paid $65,900.00 for a rental home, put 3,650.00 capital improvements on it, and sold it for 82,000.00. We had a mortgage 45,000.00 on it that was paid off when we sold it. I'm stuck on how to record the sale of this asset, showing the closing cost and net gain on this journal entry. In which type of account do I record the net gain?
Is it like this? What am I doing wrong?
Mortgage Payable debit 45,000.00
Closing costs debit 6,000.00
Cash account debit 31,000.00
Our Rental Home credit 65,900.00
Capital Improvements credit 3,650.00
Net gain 12,450.00
Thank you for your help.
Solved! Go to Solution.
We don't know your entity type. We don't know how long you owned this property. We don't know what your prior tax years reported for depreciation. We don't know your adjusted basis.
We don't know enough to help with this tax rule question.
You really need the guidance of your CPA for what the values are going to be for which part of the activity.
You are close. Start out with crediting the original purchase price. Credit improvements if you capitalized these. Credit any depreciation taken. Debit the loan balance. What ever is left over is gain or loss on the sale.
Whatever I understand is, Debit the loan (if any) Debit Accumulated Depreciation (up to date of Sale), Debit the Sale Proceeds received, Credit Historical Value (Original Cost), Credit Improvement Exp (if any), Credit Selling expenses if any. The difference may be Gain or Loss. If Gain then Credit and if Loss, then Debit.