Accounting for renovation escrow account

[David Cousens]

Hi Rob,

That depends on the circumstances and the tax jurisdiction. If the 
property being renovated is being used to produce income it is possible 
that all renovation costs may be tax deductible and depending on the 
jurisdictional rules and the amount may be immediately deductible or the 
deduction may be amortized over time i.e. accounted for as an increase 
in the value of the asset(property) and then depreciated over the 
lifetime of the asset. Which treatment is applicable is highly dependent 
upon jurisdiction.

That said, any of these can be treated in Gnucash withe the appropriate 
accounts and transactions

For a private home in my country there is usually no tax deduction 
available but this is again dependent on local tax laws.  In most 
jurisdictions you would not provide any treatment of the increase in 
valuation of the property as this is not realizable until the property 
is sold and would normally be treated as a capital gain if you have 
taxation of capital gains.

You would need to check with your tax authorities and/or a local 
accountant to determine what is the optimal treatment for your 
circumstances and what depreciation rates and periods would apply.

On another point expenses are not depreciation but depreciation is an 
expense. Depreciation accounts for the loss in value of an asset with a 
fixed lifetime over that lifetime of that asset.
Regards

David

On 11/03/2015 03:37 PM, Rob wrote:
> On Wed, Oct 28, 2015 at 7:47 AM, David Cousens <davidcousens at bigpond.com>
> wrote:
>
>>
>> You would normally setup up an Expense:Renovation account, and as you pay
>> for expenses out of your business checking account, you would have a
>> transaction which is a debit for the amount to that expense account and a
>> credit for the same amount to your checking account (i.e the 2 splits of
>> the transaction).
>>
>> When you reimburse your checking account from the Asset:Bank :Escrow
>> account, the transaction will consist of a debit of the reimbursement
>> amount to your checking account and a credit for the same amount to the
>> Asset:Bank:Escrow account.
>>
>
> IANAA, but is there any particular reason why the expenses wouldn't be
> captured via depreciation?  My understanding is that the renovations would
> have a shelf-life of more than a year and thus increase the equivalent of a
> building account for fixed assets.  You would then determine the life of
> the renovations and depreciate using whichever schedule is appropriate.
>

-- 
*Dr David R Cousens* B.Sc.(Physics), M. Prof. Acc., Ph.D. (Physics),
Grad.Cert. Ed.