Income category to use for cash-out refi proceeds

pheifetz

I set up a new mortgage loan that includes cash-out proceeds into my bank savings account. What income category should I use for this? It is to be used for a remodel and will be drawn down over the next few months. Setting up as a transfer as was suggested in a different post is incorrect. Just need to know what income category to use to account for it. My plan is to set up a new Income category: "Home equity". Does this make sense?

volvogirl

'Why can't you enter exactly what happened?  You put it in your bank account.  It is just a transfer. It is not "income".  Income would be for taxable income.  When you paid the mortgage each month it was a transfer to the loan, not an expense.  Just the interest went to an expense category.  

pheifetz

But a "transfer" from where? And income is not necessarily all taxable.
It's already part of the loan which closed at the beginning of the year. I started with a new Quicken file with all new accounts at the start of 2021. If I try to categorize it as a transfer from the mortgage that is going to create all sorts of issues. It was a real pain to get the mortgage set up correctly with accurate reminders for P&I each month that link to payments in my checking account and credit interest payments and principal perfectly. If I make this a "transfer" then Quicken will helpfully try to reconcile, and the result will more than likely be chaos that will take hours to untangle. Been there before...

A possible solution is to create a new account for Home Equity and make it a transfer from there. That I could do without risking Quicken screwing up the mortgage.

Frankx

Hi @pheifetz,

So, from what you've posted, it sounds like you refinanced an existing mortgage loan and, as a part of that process, you received cash (which - in your case - was placed in a bank account at the bank that now holds your new mortgage loan.  Is that an accurate description of what has happened?

If so - I have good news for you.  The money that you received (and is now in that bank account) is not income to you.  What it is - is an additional loan that you've taken out.  So you should not report that in Quicken (or anywhere else) as income.  Rather it is simply a part of a larger mortgage loan.

Frankx

pheifetz

Thank you Frankx, I do get that it is a larger loan and not (yet) actual income since I still hold the property, of course, and you are correct that the holder of the note is my bank. The question is how in the Quicken logic universe is the best way to account for it? If a transfer from the mortgage account is the right option then I will have to adjust the starting balance accordingly. I've used Quicken on and off for 25 years and this is the kind of thing that can cause pernicious issues that are really hard to eradicate. But, I will go ahead and give it a shot after a backup so that hopefully I can at least revert to where I am now.

Frankx

Hi again @pheifetz,

I guess I sometimes think everyone thinks like an accountant -which would be a good thing only if everyone were accountants.

When you do draw down on the additional loan proceeds you should just record them as in increase to your bank account and an increase to the mortgage loan on the property.  Then - as you spend those funds on improvements to that property - you should record those expenditures as increases to the property's cost (sometimes called the "basis" of the property).  Obviously, if those "improvements" to the real estate increase the value of the property - they will eventually result in a larger profit (i.e. more income) when you sell the property.  That's when it becomes to you.  But until then, it is just an addition to to the "cost basis" of the property.

Hope this helps.

Frankx

volvogirl

 If you are still confused let's work with some real amounts.  Like say you refinanced for 250,000 and your old loan balance was 248,000 and you paid 800 fees.  Setup the New Loan Account for 250,000 and split the starting entry as:

Old Loan Acct   -248,000
Fees Exp                -800
Transfer to Bank   -1,200