Commercial Rental Real Estate & 1031 Exchange

Discussion in 'Accounting' started by N Owen, Jan 19, 2007.

  1. N Owen

    N Owen Guest

    In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
    how is the "gain on sale of asset" booked? Is it booked as a liability to
    be used as an adjustment to purchased property basis?

    I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
    on a client's CPA to assist me with any questionable JE's. But, in this
    case client uses EA - and I need to book all entries correctly before
    financials are turned over. Enough said!!

    TIA for any help offered.
    N Owen



    --
     
    N Owen, Jan 19, 2007
    #1
    1. Advertisements

  2. "N Owen" <> wrote
    > In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
    > how is the "gain on sale of asset" booked? Is it booked as a liability to
    > be used as an adjustment to purchased property basis?
    >
    > I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
    > on a client's CPA to assist me with any questionable JE's. But, in this
    > case client uses EA - and I need to book all entries correctly before
    > financials are turned over. Enough said!!





    It sounds like you are trying to book a "gain on sale", which isn't right at
    this time at all. You don't legally own the escrow account, the
    intermediary does. There's nothing to book about the escrow balance.

    You remove the asset (making a credit entry for it's book cost), remove the
    accumulated depreciation (making a debit entry for it's book amount), and
    creating an asset called "escrow basis" (a debit) for the difference. This
    is your tax basis in the escrow account. There's no gain or loss at this
    time.

    When the replacement property gets closed, you credit the escrow basis
    account, and credit cash paid and/or mortgage established with the debit
    entry being your tax/book basis in the replacement property.

    The deferred gain never makes it to your books. The replacement property is
    properly recorded at your historical cost basis + any cash added or borrowed
    for the purchase.






    It's probably not your place to tell the EA what to do, but most people wait
    on filing the returns (and file extensions if needed) to get the 1031 closed
    on the back end before preparing the prior year returns.







    --
    Paul Thomas, CPA
     
    Paul Thomas, CPA, Jan 19, 2007
    #2
    1. Advertisements

  3. N Owen

    Nanny95 Guest

    Paul Thomas, CPA wrote:
    > "N Owen" <> wrote
    > > In the year of sale, where "Cash to Seller" is escrowed for 1031 Exchange,
    > > how is the "gain on sale of asset" booked? Is it booked as a liability to
    > > be used as an adjustment to purchased property basis?
    > >
    > > I am "just a bookkeeper" with quite a bit of knowledge, and usually depend
    > > on a client's CPA to assist me with any questionable JE's. But, in this
    > > case client uses EA - and I need to book all entries correctly before
    > > financials are turned over. Enough said!!

    >
    >
    >
    >
    > It sounds like you are trying to book a "gain on sale", which isn't right at
    > this time at all. You don't legally own the escrow account, the
    > intermediary does. There's nothing to book about the escrow balance.
    >
    > You remove the asset (making a credit entry for it's book cost), remove the
    > accumulated depreciation (making a debit entry for it's book amount), and
    > creating an asset called "escrow basis" (a debit) for the difference. This
    > is your tax basis in the escrow account. There's no gain or loss at this
    > time.
    >
    > When the replacement property gets closed, you credit the escrow basis
    > account, and credit cash paid and/or mortgage established with the debit
    > entry being your tax/book basis in the replacement property.
    >
    > The deferred gain never makes it to your books. The replacement property is
    > properly recorded at your historical cost basis + any cash added or borrowed
    > for the purchase.
    >
    > It's probably not your place to tell the EA what to do, but most people wait
    > on filing the returns (and file extensions if needed) to get the 1031 closed
    > on the back end before preparing the prior year returns.
    > --
    > Paul Thomas, CPA
    >


    Paul-Thank you for your response. The "cash to seller" off the closing
    stmnt is what is deposited to the exchange company. I have a other
    asset acct set up to hold that figure in. Looks like I need another
    acct setup to hold the tax/book basis in until property exchange is
    complete. Again, thanks!
     
    Nanny95, Jan 19, 2007
    #3
  4. "Nanny95" <> wrote
    > Paul-Thank you for your response. The "cash to seller" off
    > the closing stmnt is what is deposited to the exchange
    > company. I have a other asset acct set up to hold that figure in.




    But it's not your asset. You don't take the property relinquished off the
    books using the same method you do for a taxable sale.






    --
    Paul Thomas, CPA
     
    Paul Thomas, CPA, Jan 19, 2007
    #4
  5. N Owen

    N Owen Guest

    On Fri, 19 Jan 2007 13:38:54 -0500, "Paul Thomas, CPA"
    <> wrote:

    >
    >"Nanny95" <> wrote
    >> Paul-Thank you for your response. The "cash to seller" off
    >> the closing stmnt is what is deposited to the exchange
    >> company. I have a other asset acct set up to hold that figure in.

    >
    >
    >
    >But it's not your asset. You don't take the property relinquished off the
    >books using the same method you do for a taxable sale.
    >


    >--
    >Paul Thomas, CPA
    >
    >
    >

    OK-Is the original asset left on the books until exchange is completed?
    N Owen



    --
     
    N Owen, Jan 20, 2007
    #5
  6. "N Owen" <> wrote
    > OK-Is the original asset left on the books until exchange is completed?




    Nope. That asset is gone. You are replacing it with the net book value in
    the escrow account held by the intermediary.


    For the sale of the old property you:
    Credit the property asset for it's book cost.
    Debit the accumulated depreciation for the book A/D.
    Debit an account called "Escrow Basis" or some such title.


    You no longer are showing the property you no longer have, you are showing
    the same asset amount, just in the escrow account.






    When the replacement property is closed you:
    Credit the "Escrow Basis" account.
    Credit cash for any amount(s) paid.
    Credit for any mortgages on the replacement property.
    Debit the account for the replacement property.


    You end up recording the new asset at the basis of the old asset + cash paid
    + debt taken on the replacement property.







    There will be some other entries for closing costs and the like on both ends
    that get woven into the above basic entries.






    --
    Paul Thomas, CPA
     
    Paul Thomas, CPA, Jan 20, 2007
    #6
  7. N Owen

    N Owen Guest

    On Sat, 20 Jan 2007 09:35:13 -0500, "Paul Thomas, CPA"
    <> wrote:

    >
    >"N Owen" <> wrote
    >> OK-Is the original asset left on the books until exchange is completed?

    >
    >
    >
    >Nope. That asset is gone. You are replacing it with the net book value in
    >the escrow account held by the intermediary.
    >
    >
    >For the sale of the old property you:
    >Credit the property asset for it's book cost.
    >Debit the accumulated depreciation for the book A/D.
    >Debit an account called "Escrow Basis" or some such title.
    >
    >
    >You no longer are showing the property you no longer have, you are showing
    >the same asset amount, just in the escrow account.


    >
    >When the replacement property is closed you:
    >Credit the "Escrow Basis" account.
    >Credit cash for any amount(s) paid.
    >Credit for any mortgages on the replacement property.
    >Debit the account for the replacement property.
    >
    >
    >You end up recording the new asset at the basis of the old asset + cash paid
    >+ debt taken on the replacement property.
    >
    >There will be some other entries for closing costs and the like on both ends
    >that get woven into the above basic entries.
    >
    >--
    >Paul Thomas, CPA
    >
    >
    >

    Paul-Thanks for your confirmation. After all our messages - this confirmed
    how I made the original entry. I just use two different accounts in the
    original entry when booking the sale. One is an asset (Pending 1031
    Exchange) that is the "cash due to seller". This agrees with the closing
    statement after all items are booked. The other is a current liability acct
    (Basis-Pending 1031 Exchange), which under normal curcimstances would have
    been the "gain on sale" or "deferred gain on sale" if that had been the
    case where the owner carries the note.
    N Owen



    --
     
    N Owen, Jan 21, 2007
    #7
  8. N Owen

    Zia

    Joined:
    Jun 21, 2016
    Messages:
    2
    Likes Received:
    0

    >
    >"N Owen" <> wrote
    >> OK-Is the original asset left on the books until exchange is completed?

    >
    >
    >
    >Nope. That asset is gone. You are replacing it with the net book value in
    >the escrow account held by the intermediary.
    >
    >
    >For the sale of the old property you:
    >Credit the property asset for it's book cost.
    >Debit the accumulated depreciation for the book A/D.
    >Debit an account called "Escrow Basis" or some such title.
    >
    >
    >You no longer are showing the property you no longer have, you are showing
    >the same asset amount, just in the escrow account.

    >
    >When the replacement property is closed you:
    >Credit the "Escrow Basis" account.
    >Credit cash for any amount(s) paid.
    >Credit for any mortgages on the replacement property.
    >Debit the account for the replacement property.
    >
    >
    >You end up recording the new asset at the basis of the old asset + cash paid
    >+ debt taken on the replacement property.
    >
    >There will be some other entries for closing costs and the like on both ends
    >that get woven into the above basic entries.
    >
    >--
    >Paul Thomas, CPA
    >
    >
    >

    Paul-Thanks for your confirmation. After all our messages - this confirmed
    how I made the original entry. I just use two different accounts in the
    original entry when booking the sale. One is an asset (Pending 1031
    Exchange) that is the "cash due to seller". This agrees with the closing
    statement after all items are booked. The other is a current liability acct
    (Basis-Pending 1031 Exchange), which under normal curcimstances would have
    been the "gain on sale" or "deferred gain on sale" if that had been the
    case where the owner carries the note.
    N Owen



    --
    Posted via a free Usenet account from http://www.teranews.com[/QUOTE]
     
    Zia, Jun 21, 2016
    #8
  9. N Owen

    Zia

    Joined:
    Jun 21, 2016
    Messages:
    2
    Likes Received:
    0
    How do I book expenses like property tax, escrow fee, mortgage interest etc? Direct to expense?
     
    Zia, Jun 21, 2016
    #9
    1. Advertisements

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments (here). After that, you can post your question and our members will help you out.
Similar Threads
  1. jwolter
    Replies:
    0
    Views:
    530
    jwolter
    Jul 16, 2004
  2. jwolter
    Replies:
    3
    Views:
    3,001
  3. Rick
    Replies:
    2
    Views:
    834
    D. Stussy
    Mar 21, 2005
  4. Bob
    Replies:
    1
    Views:
    586
    L K Williams
    Apr 26, 2007
  5. news.purdue.edu

    real estate accounting, 1031 and roth ira

    news.purdue.edu, Jul 17, 2004, in forum: Accounting Software
    Replies:
    0
    Views:
    476
    news.purdue.edu
    Jul 17, 2004
  6. Realwealth2007
    Replies:
    0
    Views:
    551
    Realwealth2007
    Jan 7, 2007
  7. Guttorm Christensen

    Investment funds that invest in (commercial) Real Estate?

    Guttorm Christensen, Jun 27, 2004, in forum: UK Finance
    Replies:
    23
    Views:
    1,109
    Doug Ramage
    Jul 1, 2004
Loading...