Mortgage a business expense?

John Mc

I love the new Business tab in Quicken for Mac. However, how do I set a business mortgage account principle payment as a business expense? A Quicken support fellow has told me it is not possible, but how can that be? This is pretty standard stuff. I've set the interest (category) as a business expense, but the principle only shows up in the Cash Flow report. I don't want to wreck the mortgage tracking through setting it up as an account. I just want to turn principle into an expense. Thank you.

volvogirl

The principal part of the payment is not an expense. You depreciate the original full cost of the asset (not the mortgage principal amount). Quicken doesn't handle depreciation. You would have to figure the depreciation outside of Quicken and then set up another account for Depreciation to make the entry in to a new category called Depreciation Exp. The Depreciation account would then be an offset to the Asset or House Account. So if you bought it for 200,000 and have depreciated it 20,000 so far the adjusted cost basis would be 180,000 if you sold it. The mortgage doesn't matter at all except for the interest paid.

jacobs

But is it really an expense? Whether a business or personal property, a mortgage principal payment is a reduction of a liability, not an expense. When you bought the property, you acquired an asset, along with a liability — the mortgage. As you pay off the principal each month, you are transferring money from your checking account (an asset) to your loan account (a liability), but this would not be an expense on an income statement. The declining liability would be reflected on the balance sheet for the busi ess. (Oh, wait, we don't have balance sheets yet in Quicken Mac! Well, the developers have said that's coming in the future.)

If the payment of a business mortgage were counted as an expense, then it would be deductible as a business expense. But business tax payments are not tax-deductible. As you note, the interest payments are regular (tax-deductible) business expenses. (If you rent an office, then rent is a deductible business expense, but repayment of a loan is not.)

Read more here: https://www.accountingcoach.com/blog/principal-payment-financial-statement

volvogirl

The principal part of the payment is not an expense. You depreciate the original full cost of the asset (not the mortgage principal amount). Quicken doesn't handle depreciation. You would have to figure the depreciation outside of Quicken and then set up another account for Depreciation to make the entry in to a new category called Depreciation Exp. The Depreciation account would then be an offset to the Asset or House Account. So if you bought it for 200,000 and have depreciated it 20,000 so far the adjusted cost basis would be 180,000 if you sold it. The mortgage doesn't matter at all except for the interest paid.

jacobs

But is it really an expense? Whether a business or personal property, a mortgage principal payment is a reduction of a liability, not an expense. When you bought the property, you acquired an asset, along with a liability — the mortgage. As you pay off the principal each month, you are transferring money from your checking account (an asset) to your loan account (a liability), but this would not be an expense on an income statement. The declining liability would be reflected on the balance sheet for the busi ess. (Oh, wait, we don't have balance sheets yet in Quicken Mac! Well, the developers have said that's coming in the future.)

If the payment of a business mortgage were counted as an expense, then it would be deductible as a business expense. But business tax payments are not tax-deductible. As you note, the interest payments are regular (tax-deductible) business expenses. (If you rent an office, then rent is a deductible business expense, but repayment of a loan is not.)

Read more here: https://www.accountingcoach.com/blog/principal-payment-financial-statement

John Mc

Thank you both. I thought it could be my accounting naivety. Both of your explanations were very helpful and clear.

I just wanted to have a report of all I'm spending putting in compared to all the revenue I'm getting out total. I've gotten close with a budget but the loan principle TO and FROM both show up so it's a zeroing out. I know the principle liability is reducing but it's still a "spending out" of the business. Thanks again.

jacobs

I've gotten close with a budget but the loan principle TO and FROM both show up so it's a zeroing out.

You're on the right track! In the budget, Click on Edit Budget > Select Categories and de-select the Transfer To the loan account; this will leave the transfer from your checking account for the loan payment in the budget as a pseudo-expense.

volvogirl

Found this Sept. 2020 post for more info on reporting Depreciation….

https://community.quicken.com/discussion/7881092/how-do-you-handle-categorize-expenses-that-you-know-will-not-be-straight-line-expense-items