Tracking home improvements, and depreciation question

I'm going to replace the windows in my home which I own, and not all at once. 
 I have an asset account set up for the house that is tied to a mortgage 
account.  How do I keep track of the appreciation of the house due to 
improvements?

1.  Should the value increase by the total cost of window replacement or the 
market value of the improvement (market value percentages of common 
improvements can be found on the Internet)?  
2.  Is the cost of installation also included in the appreciation amount?  I 
know the answer is probably 'no', but how do I account for the installation 
cost in the transaction?
3.  How would I make the transaction?  When I make the payment to the 
installers, do I make the category a transfer to the asset (house) account 
and then make adjustments to decrease for market value and/or installation 
cost?

On another note, I want to keep track of appreciation/depreciation on my 
house and vehicle.  What is the best way to do that?  Should I make it two 
categories, "Appreciation" and "Depreciation", or should I make one category, 
"Account Adjustment", and keep negative and positive entries together?


-- 
Brad
0
Brad (219)
11/21/2006 5:01:01 PM
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Assuming your original home valuation was based on what you paid, and you 
have not recorded other transactions related to market value adjustments, 
the current asset value is the basis. Adding improvements adjusts that 
basis upward by the amount of the investment. If you're talking something 
you're going to report to the IRS, some things are qualified to add to the 
basis, and other things must be expensed. If you think that's relevant, 
contact an accountant.

Record your cash/check/credit card expenditures as transfers to the asset 
account. Split them if not all of the transaction applies to the house. 
When you bought your house, did you separate the cost of materials from the 
cost of construction labor? No. Cost of installation is part of the cost of 
the improvement, unless doing it yourself. In that case, only related cash 
expenditures are, like tool rental.

If you want to record market appreciation, you can do it with a direct 
adjustment into the account, or by creating a separate account called 
something like 'House - market appreciation'. Increases should be 
categorized as income.

I use the second approach because it keeps my accounts cleaner. It also 
allows selective inclusion or exclusion in reports. You can do that for Net 
Worth, for example, to show book value vs. market value.

It's all funny money until you close on a sale, anyway. Do what works for 
you. Take care to consider how easy it will be to use the information 
sometime in the distant future, should you need to.
-- 
Chris Cowles
Gainesville, FL


"Brad" <Brad@discussions.microsoft.com> wrote in message 
news:9F95A38E-134D-4B06-ACCF-CA3957B97AF2@microsoft.com...
> I'm going to replace the windows in my home which I own, and not all at 
> once.
> I have an asset account set up for the house that is tied to a mortgage
> account.  How do I keep track of the appreciation of the house due to
> improvements?
>
> 1.  Should the value increase by the total cost of window replacement or 
> the
> market value of the improvement (market value percentages of common
> improvements can be found on the Internet)?
> 2.  Is the cost of installation also included in the appreciation amount? 
> I
> know the answer is probably 'no', but how do I account for the 
> installation
> cost in the transaction?
> 3.  How would I make the transaction?  When I make the payment to the
> installers, do I make the category a transfer to the asset (house) 
> account
> and then make adjustments to decrease for market value and/or 
> installation
> cost?
>
> On another note, I want to keep track of appreciation/depreciation on my
> house and vehicle.  What is the best way to do that?  Should I make it 
> two
> categories, "Appreciation" and "Depreciation", or should I make one 
> category,
> "Account Adjustment", and keep negative and positive entries together?
>
>
> -- 
> Brad 


0
spam_magnet (1210)
11/22/2006 3:24:20 AM
Comments below.

"Brad" <Brad@discussions.microsoft.com> wrote in message 
news:9F95A38E-134D-4B06-ACCF-CA3957B97AF2@microsoft.com...
> I'm going to replace the windows in my home which I own, and not all at 
> once.
> I have an asset account set up for the house that is tied to a mortgage
> account.  How do I keep track of the appreciation of the house due to
> improvements?
>
> 1.  Should the value increase by the total cost of window replacement or 
> the
> market value of the improvement (market value percentages of common
> improvements can be found on the Internet)?

Market value is probably better if you want acurate Net Worth reporting.

> 2.  Is the cost of installation also included in the appreciation amount? 
> I
> know the answer is probably 'no', but how do I account for the 
> installation
> cost in the transaction?

Sure. But see above.

> 3.  How would I make the transaction?  When I make the payment to the
> installers, do I make the category a transfer to the asset (house) account
> and then make adjustments to decrease for market value and/or installation
> cost?

Yup. You may want, say, a split to Housing : Maintenance and Transfer : 
[houuse as asset] to reflect the issue noted above.

> On another note, I want to keep track of appreciation/depreciation on my
> house and vehicle.  What is the best way to do that?  Should I make it two
> categories, "Appreciation" and "Depreciation", or should I make one 
> category,
> "Account Adjustment", and keep negative and positive entries together?

Either would work. There isn't a One Right Answer. You also might want to 
use something like Investment Income : Property Appreciation (for the house) 
and Automobile : Depreciation (for the automobile). I choose both of these 
to put the gains (house, hopefully) and losses (automobile almost certainly 
unless you are driving, say, a 1956 Mercedes 300 SL Gullwing) into some more 
meaningful grouping. The Automobile : Depreciation, for instance, surely 
reflects the reason for the expense in the category with other like 
expenses. 


0
11/22/2006 4:00:12 AM
Thanks to both of you, Chris and Dick, for your responses.  Both of you have 
given me a lot of good ideas to handle the situation.  I want to be as 
accurate as I can but not make it too time-consuming.  I wish I would have 
taken more classes in accounting!

Thanks again.

-- 
Brad

0
Brad (219)
11/22/2006 3:18:02 PM
You raise a very good question: should the Asset account reflect Basis 
(great for tax purposes) or Value (great for Net Worth purposes).

One scenario, alternate to yours, is to track additions to basis and changes 
in value both in the Asset account and, later, depend on the remarks and 
categorization to separate one from the other via reporting or hand work in 
an Excel sheet or similar.

"Chris Cowles" <spam_magnet@remove-me-bellsouth.net> wrote in message 
news:ezEPIYeDHHA.2356@TK2MSFTNGP03.phx.gbl...
> Assuming your original home valuation was based on what you paid, and you 
> have not recorded other transactions related to market value adjustments, 
> the current asset value is the basis. Adding improvements adjusts that 
> basis upward by the amount of the investment. If you're talking something 
> you're going to report to the IRS, some things are qualified to add to the 
> basis, and other things must be expensed. If you think that's relevant, 
> contact an accountant.
....
> If you want to record market appreciation, you can do it with a direct 
> adjustment into the account, or by creating a separate account called 
> something like 'House - market appreciation'. Increases should be 
> categorized as income. 


0
11/22/2006 4:22:44 PM
I adjust my 'house - market adjustment' account to reflect the difference 
between market value and book value. There are several public sources to 
estimate market value.

I include or exclude the market adjustment account in my net worth report, 
depending on which information I want to see.
-- 
Chris Cowles
Gainesville, FL



"Dick Watson" <littlegreengecko@mind-enufalready-spring.com> wrote in 
message news:OB961qeDHHA.4808@TK2MSFTNGP03.phx.gbl...
>>
>> 1.  Should the value increase by the total cost of window replacement or 
>> the market value of the improvement (market value percentages of common
>> improvements can be found on the Internet)?
>
> Market value is probably better if you want acurate Net Worth reporting. 


0
spam_magnet (1210)
11/23/2006 12:26:40 AM
Reply:

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