USA House Ownership 50:50 with Brother

[catradingllc15]

My brother and I own a home 50:50. We have a separate bank account for collecting the Sch E income, as well as paying for various costs. Up to this point, that part is easy for me (I do the accounting in QWB). The problem I have is when Brother 1 pays out of his pocket for various repairs...when he does this, I cannot figure out journal entry. Last year, for example, we repaired one of the bathrooms at a cost of $15,000. In QWB, I made the following entries:

Dr. repair expense: $15,000

Cr. payable to brother 1: $7,500

credit ???: $7,500

Since my brother and I have a 50:50 ownership, then in this case, the "payable to brother 1" is the $7500 that will come from me. I'm lost how to account for that other $7500 credit. What account would I post this $7500 ?

 

[BIG E]

By saying you have a separate bank account - is that 1 bank account for the rental activity, or you EACH
have your own separate bank account for your ratio portion of income and expenses.

Assuming 1 bank account for the rental activity
The J/E should be:
DR Repair Expense $ 7,500
CR Cash $ 7,500

DR. Repair Expense $ 7,500
CR Payable to Brother $ 7,500
Then when you have the funds pay Brother
DR. Payable to Brother
CR. Cash

Fixing up a bathroom for $15,000 might be considered a capital improvement in which you'd have to depreciate that
cost over a 27 1/2 year period.

 

[catradingllc15]

Thank you for your reply.

The 1 bank account collects all the Schedule E income and where we disburse for normal expenses, but whenever we need something big to be done, my brother pulls the funds directly from his own accounts; I do not include any of his accounts on the balance sheet for the House.

So I would not be able to use your suggested j/e lest I throw the cash account out of balance.

Maybe I should create an Accounts Receivable account for each of us? I thought I understood T-accounts & 'normal account balance' pretty well, but this pretty easy scenario is making me scratch my head.

 

[BIG E]

Why don't you BOTH make equal contributions to the rental property bank account?
It doesn't make sense doing it the way you are currently doing it.
You can treat the money as either additional equity contributions to the partnership, that
increases your respective capital balances or have a separate payable account when you
loan the money and just charge the accounts when you reimburse yourselves.

 

[catradingllc15]

We do make equal contributions to the bank account. But since he has more cash and doesn't mind paying extra cash upfront, for the large expenditures, we account for the cash in that manner.

Since you brought up "Equity"...this is exactly where I have been putting the credit (from my original post). I post a CR., in that missing $7500 example, to Equity.

I guess I should stress that I am accounting for the property itself; the balance sheet shows assets & liabilities for the property itself - not, any personal accounts. So, when the day comes and we sell the property, the house sale proceeds go into the cash account, and then the any remaining liabilities are paid out before we split the ending cash balance 50:50.

Any other suggestions?

 

[BIG E]

"But since he has more cash and doesn't mind paying extra cash upfront, for the large expenditures, we account for the cash in that manner."

You are defeating the whole purpose of a partnership arrangement. EVERYTHING must be split equally.
If your brother puts $ 7,500 into the partnership, you must do likewise.
UNLESS there is a specific provision in the partnership agreement that states otherwise.

 

[catradingllc15]

My mom died, and my brother and I bought her home 50:50; my income helped qualify us both for the loan. We opened a bank account for any home income & expenses. There is no partnership agreement. Since he has extra cash, I set up a payable to him to account for the extra cash he is putting in. At the end of the day when we sell, anything in the payable account, will be remitted to him. There is also a payable account set up for myself, too.

 

[BIG E]

I can't help you anymore.
You insist on doing things your stubborn ignorant way and don't realize that when 2 50:50 partners have differing equity balances due to advances made by one partner, not made equal by the other partner, you are creating inconsistent tax treatment.
This is my last post - find someone else to help you.

 

[catradingllc15]

Hi. Thank you for your reply above - although a bit mean, I do appreciate your reply. I think I have figured out the answer to my original question; I need to set up a Receivable for both my brother and I. Obviously, the home we 50:50 own is the collateral to any money I may borrow from him. So that missing Cr. I was originally asking about above, would go against my Receivable.

This is now crystal clear to me the error I was doing. I had set up a Liability for my brother and I, but I never set up any corresponding Receivable. I'd appreciate your thoughts, but no problem if you don't want to reply.

Thanks.

 

[catradingllc15]

Dam. The J/E is still not making sense. The method I proposed above has my brother being fully reimbursed for his half of the expense item; one half from when the house is sold, and the other half coming from me...so he ends up paying nothing for an expense item. This is frustrating. I think I am going to bite the bullet and hire financial statement CPA to help me solve this one mysterious CR.

 

[vedika]

My brother and I own a home 50:50. We have a separate bank account for collecting the Sch E income, as well as paying for various costs. Up to this point, that part is easy for me (I do the accounting in QWB). The problem I have is when Brother 1 pays out of his pocket for various repairs...when he does this, I cannot figure out journal entry. Last year, for example, we repaired one of the bathrooms at a cost of $15,000. In QWB, I made the following entries:

Dr. repair expense: $15,000

Cr. payable to brother 1: $7,500

credit ???: $7,500

Since my brother and I have a 50:50 ownership, then in this case, the "payable to brother 1" is the $7500 that will come from me. I'm lost how to account for that other $7500 credit. What account would I post this $7500 ?

See, Books are for the company and you and your brother have 50:50 partner .right? So Expense debited you did correctly by total amount and credit would be your brother name personal account because this is like that one of partner of the company paying expense from his pocket so the company would be liable to pay him that part only.

 

[catradingllc15]

Thank you for your reply. All this time, I've been so stuck with us both paying 50%, that I totally confused myself. So all I needed to do is CR. the liability "Payable to Brother 1" for the full amount (not 50%), and then when we sell the property, he is fully paid back the cash he put in before we split the remaining proceeds from sale. Then at the end, we both end up paying 50% for those large expense items.

OMG. I now see my error...!

Thank you.

 

[vedika]

My brother and I own a home 50:50. We have a separate bank account for collecting the Sch E income, as well as paying for various costs. Up to this point, that part is easy for me (I do the accounting in QWB). The problem I have is when Brother 1 pays out of his pocket for various repairs...when he does this, I cannot figure out journal entry. Last year, for example, we repaired one of the bathrooms at a cost of $15,000. In QWB, I made the following entries:

Dr. repair expense: $15,000

Cr. payable to brother 1: $7,500

credit ???: $7,500

Since my brother and I have a 50:50 ownership, then in this case, the "payable to brother 1" is the $7500 that will come from me. I'm lost how to account for that other $7500 credit. What account would I post this $7500 ?

You have to credit 7500 by bank from which company paid and 7500 credit by brother 1 who paid out of packet and 15000 total repair would be debited in books.That means company only will pay to your brother .