Cost basis question

Lefebvres090428

hello,

I have an asset account for my home as well as a mortgage account. I want to know what is best way to enter in improvements such as new ac, new rooms added etc to the cost basis. Is this something that I can do when I enter the expense in my register? Possibly with split transactions?

Tom Young

If you make improvements to your home you make the "Home" Account as the "Category" used by the Account from which you made the payment. In Quicken's terms this is a "Transfer" from the paying Account, (checking, credit card, etc.) so you'd enter the name of your Home Account in the Category field with the name surrounded by square brackets.

If you're making progress payments as work is done (e.g., a kitchen remodel say) you can use Tags that you create identifying the project, that way it's easy to total the cost for that particular project/improvement.

Lefebvres090428

what is the best way to then categorize the expense as well?

CaliQkn

@Lefebvres090428 - for my House Value account, I started out with the purchase price with a category of "Home:Home Purchase". Then after that the only updates I make are MV updates from Zillow. I do not update the House Value account with any home improvements.

I created a "Home:Home Improvement" category that I use outside of the Home Value account.

I also have set up and saved a "Home Cost Basis" report that I can run at any time for any time period. This report shows the original purchase price (Home Purchase), plus any home improvements made (Home Improvements).

I did it this way because I have found that it is very difficult to keep track the cost within the Home Value account, which is solely based on a very subjective MV estimate.

EDIT: I just ran the report and it doesn't seem to be working right. So I need to figure this out.

CaliQkn

@Lefebvres090428 @Tom Young I had the same question about how to show the expense, but I couldn't find a way to show it on the report. It turns what I ended up doing was creating another report called "Home improvements". The total of that report plus the house purchase cost is the Home Cost Basis.

Boatnmaniac

I've used a process that is similar to @Tom Young's suggestion.

First: I Tagged the Opening Balance transaction in the House Asset account as "House Cost".

For future purchases that add to the cost basis of the house: In the payment account (checking, savings, credit card, manual loan, etc.) enter a manual transaction.

1. Enter the cost of the improvement.
2. Category: Enter the House Asset enclosed in square brackets….example [HOUSE].
3. Tag: Enter "House Cost"
4. Memo: Enter a brief description of what the purchase/expense is for.
5. Save the transaction: This will also transfer all of this information into the House Asset account register.
6. If/when the payment transaction downloads from the financial institution into the payment account, Quicken should match it to this manually entered transaction.

Register Report (House Asset account register > More Reports > Register Report): I pulled this report and customized it to include only the "House Cost" Tag and made sure that the only Account selected is the House Asset account. This report now shows only those transactions that impact the cost basis of the House Asset….including the original purchase price and all improvement transactions costs.

This process will add to the value of the House Asset so it is important to afterward update the market value of the house accordingly, whether that be by using Zillow or by manually updating the account value with your own estimate.

This process has worked well for me for quite a few years.

CaliQkn

@Boatnmaniac , @Tom Young it still bothers me (just a little) that you can't attach a "Home Improvement" category to the transfer. That is why I started doing it the way you do, but I then decided not to.

What do you think about using the "Home Improvement" category for both sides of the "transfer" and essentially creating an "unlinked" transfer?

Boatnmaniac

https://community.quicken.com/discussion/comment/20490017#Comment_20490017

Being able to attach a category to a transfer is something that others have requested for years but for whatever reason Quicken Inc. has opted not to do that for QWin. (I understand that the 1st evolution of QMac did allow for this feature but it was eliminated in the current evolution of it.)

Others have requested this capability for distributions from tax deferred accounts like IRAs because in Tax Summary and most Income/Expense reports they show up as transfers and not tax-deferred income. But it's properly captured in the Tax Schedule report and in Tax Planner as deferred income, not actual current income.

I think the rationale for not allowing categories to be attached to transfers is that transfers are not really expenses (or income) but categories show they are expenses (or income). That seems to be an accounting contradiction.

Instead they represent a transfer of an asset from one account to another which results in no change to net worth. In many ways, making an investment in the cost basis of an asset is really not much different that making a cash transfer between a checking and savings account…it's just a transfer of assets.

The expense or income side of this scenario takes place in the balance adjustment (i.e., depreciation or appreciation) of the house asset account after the transfer occurs. This is the transaction that affects net worth.

My initial thoughts about using Home Improvement or House Cost or whatever for the category on both sides of the non-transfer transaction:

1. There would need to be two transactions entered (one in the payment account and one in the house asset account) instead of just a single transfer transaction. So, a little more effort involved.
2. The two transactions would cancel each other out in the Income and Expense reports. That would provide essentially the same result as using the current transfer category process. So not really an issue per se but what benefit does it provide? Or what am I missing here?
3. One of the benefits of transfers is that there is a traceable link directly tying the transactions in each account together. Using a common category in two separate transactions does not provide any link between the two accounts.

Well, that's my initial thoughts on this. If you have some other ideas or considerations, I would certainly like to hear them.

Tom Young

There's other approaches here, depending on what you're trying to achieve but to have a Transfer between Accounts also be coded as a true "Category" just isn't going to happen. That's a 3-legged stool while double entry accounting requires a "balanced" entry on the two sides of the scale.

One way of preserving the costs of a "project" (multiple payments over a period of time) in an easily understood and coherent form could be a "work in progress" balance sheet item with a title of the Account including the project's name. Progress payments are lodged here until the project is complete, and then you zero out the Account by moving the balance to the House Account. You could have many of these WIP Accounts over time, preserving every payment against the projects. And when the Account is zeroed out you simply hide it. This keeps your net worth unchanged.

The other way would be to create a Category with the project's name in the title. All payments go into that Category, providing viability on an income and expense report. When the project is done the Home Account is debited (increased) using that Category as the other side of the entry. This will reduce your net worth as you make payments, but it will rebound when you make the closing entry.

And yet another way of having your cake and eating it too, is to capture Transfers into the Home Account (or one of the WIP Accounts) show up as a quasi-expense on the income and expense report. The "bottom line" of this report won't "tie" to a balance sheet that incorporates all the Accounts in the file, but would "tie" to a special purpose balance sheet that you create for the purpose.