tracking capital improvements to real estate

[Cary Kempston]

Hi,

I have a question that I haven't seen asked before, and I'm wondering
how best to approach since I'm sure someone's dealt with this before.

Based on previous posts to the list [1] I track the value of my house
as an asset (e.g. "MAIN-ST-123") and occasionally add price directives
to update the price. We're planning on doing some major improvements
such as adding air conditioning that will increase the value of the
house. It's easy to update the price, but what's the best way to
track the cost of the improvement (the other leg of the transaction
where I pay the contractor)? I'd rather not book it as an Expense
since that will throw my income statement off. Should it be booked
against an Equity account instead, like this, along with a new price
directive?

2017-10-01 * "install air conditioning"
Assets:Bank:Checking -5,000.00 USD
Equity:Main-St-123:Capital-Improvements

The other reason I'd like to track this is that it increases the cost
basis of the house, which I'd like to track for when we sell it.

Thanks,
Cary

[1] https://groups.google.com/d/msg/beancount/bw6xa-xa7Kc/Hm-Igmq1CwAJ

[yegle]

When you buy a house

2000-01-01 * "buy a house"

    Assets:Bank:Account -100,000 USD

    Assets:House 1 HOUSE @100,000 USD

When you spend money improve it

2001-01-01 * "remodel"

   Assets:Bank:Account -1000 USD

   Assets:House 1000 USD

In the end when you sell the house

2002-01-01 * "sell"

  Assets:House -1 HOUSE @200,000 USD

  Assets:House -1000 USD <-- manually specify all the cost you spent on the house so the balance would be 0 after this transaction

  Assets:Bank:Account 200,000 USD

  Income:House:PL <-- absorb unbalanced numbers here, this is your profit/loss from the buying-selling of the house

--
You received this message because you are subscribed to the Google Groups "Beancount" group.
To unsubscribe from this group and stop receiving emails from it, send an email to beancount+unsubscribe@googlegroups.com.
To post to this group, send email to bean...@googlegroups.com.
To view this discussion on the web visit https://groups.google.com/d/msgid/beancount/CAN3-EDUYkXoBoYSkZxcCvZmSXa0s2qKyyLdDQM37EN1ht4xe7Q%40mail.gmail.com.
For more options, visit https://groups.google.com/d/optout.

--

Yuchen Ying
https://about.me/yegle

[Metin Akat]

Hi,

I'd suggest having a sub-account for improvements.

Assets:House:Improvements

While doing renovations, you increase the value of that account. Then if you later sell the house, you can work the differences and account for your profit/loss

You can even track monthly depreciation if you use something like this: https://groups.google.com/forum/#!topic/beancount/Fr4NNT9NBaA

I'm doing exactly that for my car. Here is a direct excerpt from my file:

2017-04-12 * "The guy who fixes my car" "Change control arms, shock absorbers and accessories"

     Assets:Property:Lexus-RX400h:Parts                                      1147.90 BGN

     Expenses:Auto:Lexus-RX400h:Maintenance:Labor                  300.00 BGN

     Liabilities:Credit-Card

2017-04-12 * "Control Arms, Shock absorbers and accessories" "Depreciation"

    amortize_months: 36

    Expenses:Auto:Lexus-RX400h:Maintenance:Parts   1147.90 BGN

    Assets:Property:Lexus-RX400h:Parts

2017-02-01 * "Lexus RX400h" "Depreciation"

    amortize_months: 24

    Expenses:Auto:Lexus-RX400h:Depreciation           6500 BGN

    Assets:Property:Lexus-RX400h

As you can see, I depreciate both the improvements (parts) and the main car account. The idea is to depreciate in such a way that the total balance of the parent car account will match the price at which I will finally sell it. When this happens, I'll come back and fix these depreciation transactions retrospectively, so that they match exactly what happened.

I already converted my previous car to this way of accounting and it worked wonderfully.

Of course, for a house I'd have a commodity "HOUSE" as discussed earlier, but this doesn't really change the whole idea. You can adjust the "house" and "improvements" accounts in such a way that best makes sense to you. Don't forget that improvements also depreciate over time (as I have shown for my car).

I hope this helps.

Best regards,

Metin

To view this discussion on the web visit https://groups.google.com/d/msgid/beancount/CAFL5w3VHAhONn2gU%2BbNpVf2UAJ2rDaEOg_gnN5hNfjLsBxXFeQ%40mail.gmail.com.

[Metin Akat]

Wow, Cary, now I see you are the author of this plugin :)

I'm glad I can help you back with your own tech ;)

[Cary Kempston]

On Tue, Oct 10, 2017 at 11:34 AM, yegle <cny...@gmail.com> wrote:
> When you buy a house
>
> 2000-01-01 * "buy a house"
> Assets:Bank:Account -100,000 USD
> Assets:House 1 HOUSE @100,000 USD
>
> When you spend money improve it
>
> 2001-01-01 * "remodel"
> Assets:Bank:Account -1000 USD
> Assets:House 1000 USD
>
> In the end when you sell the house
>
> 2002-01-01 * "sell"
> Assets:House -1 HOUSE @200,000 USD
> Assets:House -1000 USD <-- manually specify all the cost you spent on the
> house so the balance would be 0 after this transaction
> Assets:Bank:Account 200,000 USD
> Income:House:PL <-- absorb unbalanced numbers here, this is your
> profit/loss from the buying-selling of the house
>
>

Thanks for the suggestion. It seems like that would end up double
counting improvements when the price gets updated. For example,
instead of a selling the house on 2002-01-01, suppose it gets
appraised for $105k:

2002-01-01 price HOUSE 105,000.00 USD

That price will take into account the improvements, so I'd be counting
them in both asset price and the 1000 USD balance in Asset:House. I
could adjust that account whenever the price gets updated to
incorporate the new information, but then I have the same problem of
what account to book it against.

[Cary Kempston]

On Wed, Oct 11, 2017 at 12:38 AM, Metin Akat <akat....@gmail.com> wrote:
> Of course, for a house I'd have a commodity "HOUSE" as discussed earlier,
> but this doesn't really change the whole idea. You can adjust the "house"
> and "improvements" accounts in such a way that best makes sense to you.
> Don't forget that improvements also depreciate over time (as I have shown
> for my car).
>

I would definitely account for it that way if it where a rental
property, with some changes to my depreciation plugin to account for
the IRS-accepted depreciation methods. In this case the house is my
primary residence, and so no depreciation is allowed, and if I sell
the house with the improvements I get a capital gains exemption for
the cost of the improvements, no matter how old they are.

I'm not saying this makes sense, I'm just trying to match my account
with what the IRS expects.

Essentially I'm looking to hide the one-time cost so as not to affect
my income statement. Perhaps I should just have an Expense account
for it and then write a custom report (or maybe a plugin) to exclude
that account from my income statement.

And I'm glad my plugin has been helpful to you :).

[shaliniy...@gmail.com]

The bulk SMS service in Delhi is quite in demand now as it provides the customers with a lot of coupons & advantages. It also keeps them updated about the offers and discounts which they can avail. This along with increasing the reach also increases the popularity of the company on common grounds. It also saves time along with being an adaptable platform.

These bulk messages are also providing customers a quick in & out, as they can just click on the message and get access to the scheme. They also do not have to provide any personal information.

https://www.hinditsolution.com/