nav[aria-label="Primary Navigation"] { padding: 0; & ul { list-style: none; width: 100%; display: flex; flex-direction: row; justify-content: start; align-items: start; gap: 30px; padding: 0; & li { margin: 0; } & ul li { list-style: none; } } }

How does one set up rental property payments so that the ENTIRE payment is seen as an expense?

tateter

I have the payment set up correctly, split, so that the principal payment is a transfer to the mortgage account, and the interest is assigned to a category that is schedule E: mortgage interest associated. But that makes the Profit/Loss view under Rental Property show only the interest as an expense, which is dead wrong! My expense is the entire mortgage payment, not just the interest! Is there anybody who has solved this?

Find more posts tagged with

Comments

NotACPA

You really shouldn't do that.

The EXPENSE was when you took out the mortgage and used that money to buy the property.

Your monthly payments go to Interest (an Expense) and to reduce the mortgage principal (a Transfer, not an expense) and to any escrow account (again, a Transfer).

If you want to see the total outflow (which you're mistakenly calling "expense") use a Cash Flow report rather than an Income/Expense report.

unknown

This content has been removed.

tateter

I don't know what you mean by I "really shouldn't do that". I'm simply looking at a view that Quicken provides and it is wrong and I'm looking for someone who has solved this problem, not tells me I'm wrong.
I've attached a pic of the view I'm using. This is in the Property Management version of Quicken and, as you can see, they call the money paid out "Total Expense". They call the rent paid in "Income" and the difference between the two "Profit/Loss". Those are all good, and the terms appropriate for managing rent, expenses, and profit/loss.

But my TOTAL EXPENSE is my entire mortgage payment, not just my interest. So the view misrepresents my profit! And that's wrong!

I do not want to run a report - I want to figure out a way in which to fix this view, the quick view I use to see...wait for it...profit or loss.

Thanks.

Quicken Example.jpg

volvogirl

The principal part of the mortgage payment is not an expense. When you bought the property you should have set it up as an ASSET and then depreciate it over time on your tax return. That takes care of the principal part. The Depreciation is what goes on your schedule E.

NotACPA

Again, the EXPENSE was when you bought the property. NOT when you pay the principal on the loan. HOW did you record that purchase?

Because, using normal and customary accounting practice, you're trying to record the Purchase price twice ... once when you bought the property and again with each Principal payment.

A Transfer is NOT, NOT, NOT an expense.

Use a Cash flow report to see what you want ...not a P & L report.

tateter

Let's take a different tack...

I'm a landlord. The rent is $1300. That's income. My mortgage is $850. I call that an expense because it's out of my pocket. This expense is the amount that keeps me from profiting all $1300! My net profit is $450. Pretty straightforward, right?

But the Quicken view I sent a pic of in the previous message (please look) shows only the interest of $715 as an expense (Quicken LABELS THIS AN EXPENSE!) which gives me a profit of $585. But I didn't net $585!!!! No matter how you look at it, no matter how you label it, that's the wrong profit!

But that is what Quicken is showing me on the profit/loss screen under the Rental Property tab. No reports. This is a view that Quicken is showing me (see the pic in my previous post) that shows me the wrong profit!

volvogirl

No. You are confusing cash flow with Net Profit or Loss.

If your rent income is less or not much more than the mortgage payment you don't necessarily have a loss. In fact you may end up showing a net profit on your tax return.

If you don't understand the accounting you should sit down with an accountant to explain it to you.

NotACPA

"My mortgage is $850. I call that an expense because it's out of my pocket."

That is NOT an expense. Part is an expense, and part is a transfer to pay down the mortgage loan.

WHY can you not understand that???

You're confusing Cash Flow with Income/Expense.

volvogirl

Here's some tax info that will help

Here's some tax guides and videos on Rentals

https://turbotax.intuit.com/tax-tips/rental-property/

What kind of Rental expenses can I deduct?

https://ttlc.intuit.com/community/credits-and-deductions/help/what-kinds-of-rental-property-expenses-can-i-deduct/00/26372

What is Depreciation?

https://ttlc.intuit.com/community/rental/help/what-is-rental-depreciation-and-how-does-it-differ-from-an-expense/00/26371

IRS publication 527 on Rental Property….

http://www.irs.gov/pub/irs-pdf/p527.pdf

NotACPA

Let's make this real simple.

In Q, a transaction (or a split line) is ONLY an expense if an Expense Category is used. A Transfer doesn't have an Expense Category associated with it.

AND, an expense category is ONLY taxable if it has a TAX LINE associated with it.

tateter

Okay, after a little more reading, I see that I've made this more confusing by my use of the term expense. Before becoming a landlord, I've always considered anything I paid out an expense. Cable, gas, electric... these have been expenses. But you're saying that in the context of running a business (i.e.,being a landlord) I now need to be more careful about what I call an expense.

So, independent of the terminology, I'm still having trouble with this: My business checking account is down $830 a month for the mortgage. Yes, the $100 principal part of that is a transfer, which reduces my liability, but I'm still out of pocket that $100. So I see that as a wash - no profit, no loss.

The remaining $730 is, as you've explained, the only part called an expense. But, does that make the profit (assuming no operating expenses or other inputs or outputs) $1300 - $730 (i.e., $570) or is the profit $1300 - $830? (i.e., $470).

Thanks!

Beijing Mac

it's this pesky thing called equity -- you are paying on the principal part of the mortgage you have on your rental property. In the tax world, that is not an expense, but is part of your cash flow as pointed out earlier. for tax purposes, money contributed toward the principal is not an expense and therefore not deductible. Only the interest part of the payment is an expense for tax purposes.

Michael Jones

In the Rental Property section, there are 2 tabs: Profit/Loss and Cash Flow. You need to make sure you are looking at Cash Flow if you want to see cash in vs cash out. That will show the entire payment as a 'cash out' for the sake of tracking against your checkbook.

Proft and loss is more a tax view as everyone else has mentioned, and that will 'take out' the equity payment part in calculating a profit or a loss as for tax purposes the equity side of your loan is treated as a repayment of equity.

And yeah, might be useful to take a short accounting class or hire someone to take you through the basics. While your rental business may be a CASH business, it still operates differently for tax purposes from your household in that you need a balance sheet, income statement AND a cash flow statement to understand where everything stands.