How to record property sale and capital gain?

Question

Sold a property (not a residence) and not sure how to record the capital gain.  Here is an example of how Quicken recorded it:

Quicken Asset Value - Basis:               $75,000

Settlement Sheet Proceeds Entered: $100,000  deposit to checking account

New Quicken Asset Value:                  ($25,000)

Quicken left a $25,000 negative value for the Asset.  No Capital Gain recorded.  So how do I properly enter the 100,000 Sale so it zeros out the asset and records the capital gain. In accounting it would be:

Debit  Cash          $100,000

Credit Asset           $75,000

Credit Cap Gain     $25,000

Thank you!

q_lurker · Answer

A few things to note:

* The Cap Gains report only uses investment accounts, so transactions in Banking or Property (Asset) accounts will not show up in that report.
* You can create your own category and assign a proper Tax Form and Tax Line, but off-hand I am not sure what those forms and lines are for a real estate gain.  I would not use the built in _RlzdGain that is used as part of the basic investment account reporting. 
* I am not sure how such new category might flow into the Tax Planner.
* I would be inclined to enter a 'balance adjustment' transaction in the asset account bringing that account up to sale value.
* The other option I see is a split transaction in the 'checking' account - $75,000 from the asset account taking that to $0, and the second part of the split as the $25,000 gain to the newly created category.

CHess1201 · Answer

You answered my question.  Thank you!   Quicken doesn't automatically record the capital gain.  I'll record the capital gain to an income account.

Sceptic · Answer

@CHess1201 The negative $25,000 balance occurred because Quicken reduced the asset account by the full $100,000 transferred to checking, even though the asset account only contained $75,000. In other words, Quicken treated the transaction as a transfer of $100,000 out of the asset account, resulting in a negative remaining balance.

Keep in mind that Quicken does not automatically calculate or record a capital gain when a manually tracked asset is sold. Manual asset accounts are primarily used for net worth tracking.

Also, the capital gain is generally based on the property's adjusted cost basis, not necessarily the current value shown in the Quicken asset account. If the account balance of $75,000 represents the property's adjusted basis, then a $100,000 sale would indeed result in a $25,000 gain. However, if the asset account value had been updated over time to reflect market value, the gain could be different.

To properly reflect the sale in Quicken, you would generally want the asset account reduced to zero and the gain recorded separately using an appropriate income category. Quicken will not automatically create that gain entry for a manually tracked asset.

Since the actual gain on the sale of real estate can be affected by factors such as adjusted basis, capital improvements, depreciation, and selling expenses, you may wish to consult a tax professional if you are unsure of the correct gain amount to record for tax purposes.