How to handle Subdividing Costs for rental property?

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SilverGlider
SilverGlider Member ✭✭

I own a single 10 acre property with two houses (R.Unit01 and R.Unit02), both currently rented. I am subdividing the property into two equal pieces in order to sell each one individually next year. The subdividing work (surveying, drawing up the new boundaries and documenting them for the legal work) has associated costs. The legal work (new deeds, registration with the city, etc.) will have additional associated costs as well.

I am not sure how to categorize these expenses in Quicken as they come in.

Since I (the manager/owner) commissioned this work, do I categorize them as "Rental Expenses:Management fees" or "Rental Expenses:Legal and other professional fees"?

I am not a bookkeeper, and can make a case to myself for using either one. I there a correct way tax-wise and/or bookkeeping-wise to expense these?

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  • SilverGlider
    SilverGlider Member ✭✭
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    I'm moving this to the correct (I now believe) discussion area, "Business and Rental Property Tools (Windows)" . Don't know how to delete it from this discussion area. Would appreciate that help, though…

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited July 2023
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    "I am not sure how to categorize these expenses in Quicken as they come in."

    Well, for sure you know that you will end up with two real estate property Accounts in Quicken, each with their own cost basis.

    II really don't know but I expect that the bulk of your costs will NOT BE expenses ("Categories" in Quicken-speak) but instead SHOULD BE capitalized ("Transfers" in Quicken-speak) in the newly created properties. "Expenses" are "current period" costs that show up in an Income & Expense report, but items that are capitalized are added to the cost basis of the properties.

    I'd say you have two ways of approaching this exercise.

    The first is that you school yourself as to what costs the IRS would consider current period expenses and what costs the IRS would consider properly capitalized in the new properties. This might involve either online research - I'm not steeped enough in the tax aspects of subdividing to offer creditable advise - or consulting with a CPA who knows this stuff. Then you set up your Quicken accounting accordingly. This might involve creating some "custom" Categories for certain expenses that you want or need to keep track of. When it comes time to prepare your income tax returns the information is all properly accounted for for you or your CPA to simply enter these costs (expenses/capitalization) in the appropriate spots in the the income tax return.

    The other approach is you "wing it" putting the costs incurred into an expense Category - you could create a new Category called "Subdividing Costs" or something - and then either you or your CPA use analysis of that Category to get the costs to the correct spots in the income tax return.

    From an income tax return standpoint - and that's what drives most of our accounting these days - it just doesn't mean an thing as to what you call your costs in Quicken, it's how you present your costs in your income tax return that's really important.

  • SilverGlider
    SilverGlider Member ✭✭
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    Thanks Tom - lots to think about and some work to do on my part - there are no easy answers, it seems - tanstasfl

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