Hi Community, I've too tried desperately to find help in entering a real estate closing into QuickBooks, and after a lot of research I would like to offer the solution I used to enter the closing accounting. I believe this is a unique approach to the problem, but it works, and I could actually understand the process - I'm not a trained accountant. - Instead of using a Journal Entry (Which still confuses me) I used the Fixed Asset account for the purchased property to list the details of the closing costs. You'll see where the unique aspect comes into play when you enter the closing statement details. So here's what I did. 1. Setup your real estate ASSET and EQUITY Capital Investment accounts. Here was the situation when I created my real estate company in QuickBooks: - I had not incorporated yet - I had not created my bank account yet 1A. Create an EQUITY account called "Owner Capital Investment". This is where I entered the earnest money check I wrote to the realtor. Since I didn't have a business checking account yet, my personal check amounts to a capital investment (Or Business Loan) to my business. 1B. Create a FIXED ASSET account with the address of the property - I named mine "120 W Silver Ave". Then create sub accounts under the ASSET account called "Land", "Building" and "Accumulated Depreciation". This was enough to get started. 2. I Entered the Earnest Money Check. Since I didn't have a business account yet, this was a personal check I wrote to the realtor. So I entered this "investment" into the "Owner Capital Investment" EQUITY account as follows: 2A. Open the register for the property FIXED ASSET Account "120 W Silver Ave:Building" 2B. Enter the amount of the earnest money in the "Increase" Column, and use the account "Owner Capital Investment". "Increase" - Since the earnest money will contribute to the purchase price of the property. 3. File Incorporation and setup a Business Checking Account if you haven't already. I put the funds for the closing into the business checking account prior to closing, so I could write the final check at closing from the business checking account. 4. After the closing, take the HUD-1 Closing Statement and enter the following into the Building Fixed Asset Register: 4A. Enter all CREDITS from the closing statement as "Increases" in the building register. The earnest deposit amount should already be in the register. These entries were: - Deposit, Loan Financing Amount and any other amounts I received from the seller. 4B. Enter all DEBITS from the closing statement as "Decreases" in the building register. These were: - Closing, Recording and Transfer Fees, Title Insurance, any prorated utilities I needed to pay for, Survey, and the first loan payment (interest only). 4C. You will need to create the appropriate expense (and Liability if you got financing) accounts as you go along the closing statement. Here are the expense accounts I created for my closing: - [EXPENSE] Real Estate Taxes (For any prorated real estate taxes) - [EXPENSE] Closing Fees (For Closing Fee, Filing Fee, Recording Fees, Transfer Tax, etc) - [EXPENSE] Title Insurance (I created under "Insurance" parent account) - [EXPENSE] Utilities ( I created subaccounts Propane, Water & Sewer, etc) You probably have a loan as part of the transaction, so I created accounts for the loan P & I - - [LONG TERM LIABILITY] (i.e. "120 W Silver Ave - Loan") - [EXPENSE] (i.e. "120 W Silver Ave - Loan Interest") As part of the closing I pre-paid the first month interest-only payment so I entered that amount as a Debit/Decrease and specified the Loan Interest expense account. The trick to this approach of using the building asset account to enter the closing information is that you can't enter the purchase price of the building itself in the building register. Since you are entering into the building ASSET account when you enter the purchase price from the closing paperwork, QuickBooks will warn you that you are making an entry into the register and using the SAME account to post the entry - SO, DO NOT ENTER THE PURCHASE PRICE into the register, just enter everything else from closing. What you should find is that after all Credits and Debits are entered into the building account, you should be left with a balance in the register equal to the purchase price of the property, which is the BASIS Value you want in the register! 5. You should finally make an adjustment and move the appropriate amount from the building account to the "Land" account, since Land is not depreciable. For example you might transfer $20,000 or so into the Land account. The real estate tax bill will have an assessment for the value of the land, but that is not always an accurate figure. Hope this helps! Cheers AC
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The purpose of the Asset account is to track the real estate basis value, for depreciation purposes (as well as resale). So I would only put improvements in the Asset account that increase the basis value of the property which will then effect the depreciation schedule. The treatment of appliances is a matter of preference. I would consider the purchase of the property including all appliances as part of the basis and depreciate the property. If you wanted to get more complicated, you can split off the appliances as their own assets, and lower the basis of the property accordingly. This will lower the basis of the property, which might increase capital gains taxes at resale. The benefit would be deducting the cost of the appliances as a write off the first year, since the appliances would be below the cap limit for fixed assets (typically $2500 ea).
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