Quickbooks Desktop Pro: how to account for starting capital?

Question

Natalie Kolodij · Answer

All of your initial renovations and such to get the home in rental condition will be added to the home's basis.

So in this case it's a house hack I'm assuming which will make it weird. But assuming all 3 units are rental.

You'll need to figure out depreciable basis of building vs. land

You'll set up building (including totals as a depreciable asset) and land as a non depreciable asset and the other side to that journal entry will be an increase to a loan if there is one, or it's capital contributions/equity.

Michael Chizhov · Answer

Thank you, @Gita Faust. I appreciate your input. As others suggested earlier I started with the opening balance feature, but it was throwing my equity numbers off and I was having trouble wrapping my mind around how to reconcile that balance at year end. I'll go back into my books and see about adjusting the opening balances through a deposit as you suggest.

Gita Faust · Answer

DO not use the Opening Balance feature. Instead - create a deposit to record bank opening balance and post it to Owners Investment.

If you are starting your books as of 1/1/2020 then your opening balances for everything, including loans, assets should be recorded as 12/31/19.

Natalie Kolodij · Answer

I'd check with your CPA.

We may like things differently. I like using customers/subs on rentals. And I use classes more for flips.

Michael Chizhov · Answer

Thanks @Natalie Kolodij, I think in the meantime I'll do as you suggested, put it all under Repairs and adjust it at end of year with my CPA. Final question (thank you again for your time!), how would you recommend I categorize the renovations in QB Desktop Pro? I'd like a way to separate the expense by unit (1, 2, and 3) and by type of renovation (flooring, appliance, furnace, etc). Would this all be done with classes and sub-classes?

Soh Tanaka · Answer

As far as I know, you should be OK to enter the initial deposit.

Natalie Kolodij · Answer

Well- now I would recommend consulting with a tax professional because based on items you listed some of those may be able to be separated out and expsensed and not capitalized.

Talk to your CPA and ask how they want to see this for tax purposes. Some just want everything put into "repairs/renovations" and they'll report it correctly on the tax reutnr- then give you journal entries to adjust your QB accordingly.

Michael Chizhov · Answer

@Soh Tanaka Thanks for the reply; my understanding was that the opening balance should be 0, since it's a line item QuickBooks makes up and one that should either be deleted altogether or adjusted through a journal entry allocating the opening balance to an equity/owner's capital account. Have you used it differently?

@Natalie Kolodij Appreciate you mentioning the renovation expenses, yes I assumed it would all go under a Capital Expenditure since the home is not currently rented. I'm a bit confused though as to exactly what account to file reno expenses under. Let's say I bought $2500 of flooring and installed it myself, and also bought $3000 of cabinets and paid a contractor $2000 to install them (making numbers up here). Would I create an "Other Fixed Assets" Account titled Property Improvements, create a class for my property, and categorize the $7500 under that Fixed Asset account type? And then figure out how to depreciate that cost alongside the building itself with my accountant later in the year?

Soh Tanaka · Answer

I'm not an accountant, but entering an opening balance when you first set up the bank in QB sounds like the easiest thing to do (as long as recording the sale of your other investments to QB is not important.)

Quickbooks Desktop Pro: how to account for starting capital?

Quickbooks Desktop Pro: how to account for starting capital?

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