Borrower Final Closing Statement

[NPH]

Credit

Deposit: $4,000

1st Deed of Trust: $900,000


Debit:

Loan Proceeds later to disbursed to the CitiBank: $900,000

Title and Escrow Charge: $3,800 Debit

Refund: $200

Property Number: APN: 323-151-001

How can I book this journal entry?

[JG EA]

How much

How much did the thing bought cost? And where did you book the original $200 paid? Perhaps Earnest money?

Why do you have the property number in there? You have left out some closing statement info?
If you enter it all on the deposit for instance, just as on your closing statement, it should come out with your $4000 deposit.

[Black Bart]

I suggest a debit

Credit / Deposit: $4,000 / 1st Deed of Trust: $900,000 / Debit: Loan Proceeds later to disbursed to the CitiBank: $900,000 / Title and Escrow Charge: $3,800 Debit / Refund: $200 / Property Number: APN: 323-151-001 (????) / How can I book this journal entry?

to Cash in (Whatever) for the $4K. For the balance I defer to the judgment of Jack and the Bean Counters. You'll have to cut up that $3,800 T&E for allocation to basis and expense, won't you? And don't forget the the tax preparers' motto: When in doubt -- deduct.

One should not go to sleep at night until the debits equal the credits -- LUCA PACIOLI (the "Father of Accounting" -- a Franciscan monk whose descendants now reside in Missouri).

P.S. No, make that a credit (never can get those straight -- it's debits on the side next to the window and credits over by the file cabinet.

Where's that OldJack anyway? I bet he's thinkin' maybe you're an amateur, but if you give some more details like JG said, he might kick in his two cents worth anyway.

[Black Bart]

Edits don't move a post, so

maybe if I move it back up top and get his attention. It's a long shot though -- he knows lotsa stuff, but you wouldn't believe what a contrary ol' cuss...(from Missouri, see).

[OldJack]

but you wouldn't believe what a contrary ol' cuss...(from Missouri, see).

Contrary ol'cuss??? Everyone knows I'm just a lovable old fart.

As has already been pointed out there isn't enough detail to really answer the question. Also, it would appear that this might be just a re-finance paying off a Citibank loan. If it is actually a purchase of property it would appear to be real estate with 100% financing, not likely.

[NPH]

There is no more detail information. ALL the information in the Closing Statement is here. The guy who in charge of the property is on vacation. I believe that this is a refinance for a property.

[OldJack]

There is no more detail information. ALL the information in the Closing Statement is here. The guy who in charge of the property is on vacation. I believe that this is a refinance for a property.

You just gave us more information that should have been in the original post.

Since this is a re-finance your entry would include something like this:

Dr. the Citibank loan liability account to zero balance.
Dr. Interest expense for payoff of Citibank interest if not previously expensed.
Dr. the property asset account for closing costs (3,800) that are NOT deductible (title fee, recording fee, document fee, commissions, etc.).
Dr. expense accounts for closing costs (3800) that are deductible expenses. (interest, insurance, utility fee, taxes, etc.)
Dr. Escrow account for the balance of the account. (asset as its a prepaid expense)
Cr. Cash in Bank for the $4,000 paid on deposit for closing.
Dr. Cash in Bank for the refund of $200 on closing (or a receivable if not deposited)
Cr. the new loan for $900,000

[NPH]

You just gave us more information that should have been in the original post.

Since this is a re-finance your entry would include something like this:

Dr. the Citibank loan liability account to zero balance.
Dr. Interest expense for payoff of Citibank interest if not previously expensed.
Dr. the property asset account for closing costs (3,800) that are NOT deductible (title fee, recording fee, document fee, commissions, etc.).
Dr. expense accounts for closing costs (3800) that are deductible expenses. (interest, insurance, utility fee, taxes, etc.)
Dr. Escrow account for the balance of the account. (asset as its a prepaid expense)
Cr. Cash in Bank for the $4,000 paid on deposit for closing.
Dr. Cash in Bank for the refund of $200 on closing (or a receivable if not deposited)
Cr. the new loan for $900,000

Many thanks.

Deposit in the amount of $4,000 was orginally booked as Property Assets, so I just need to credit Property Assets $4,000?

Escrow account is cash account, account receivable account or prepaid expense account?

should I set up cash account for the deposit in the Closing Stmt in the regular basis?

[OldJack]

Deposit in the amount of $4,000 was originally booked as Property Assets, so I just need to credit Property Assets $4,000?

You could just make a separate entry for closing cost to debit expense (interest, taxes, etc.) for the portion of the $4,000 that is deductible and credit the property asset account thereby leaving the appropriate amount (title fees, recording fees, etc) of the $4,000 as an asset increase. You would also reduce the $4,000 by the refund of $200 and the balance amount of the escrow account.

The another entry is to debit the Citibank loan to zero, credit the new loan for $900,000 and with any difference (plus or minus) write off as interest expense.

Escrow account is cash account, account receivable account or prepaid expense account?

The balance of the escrow account should be in a prepaid expense account in other assets section. Its not your cash account (bank account) and it is not refundable (receivable account) unless the loan was paid off. At least once a year (preferably monthly if you know how much goes into the escrow account) you adjust the escrow account balance to the correct balance agreeing with the loan company statement and record as an expense the taxes and insurance paid from the escrow account.

[abby]

one quibble only

Loan Costs are not added to basis, but amortized over the life of the loan. It could be argued that in a refinance, all costs (including title charges) are loan costs as they are necessary to obtain the loan - not buy the property.

[OldJack]

Abby is correct although not all closing cost may be deductible.

Here is a quote from IRS Pub 551, page 2 & 3.

Settlement costs. You can include in the basis
of property you buy the settlement fees and
closing costs for buying the property. You cannot
include fees and costs for getting a loan on
the property. (A fee for buying property is a cost
that must be paid even if you bought the property
for cash.)
The following items are some of the settlement
fees or closing costs you can include in the
basis of your property.
Abstract fees (abstract of title fees).
Charges for installing utility services.
Legal fees (including title search and prep-
aration of the sales contract and deed).
Recording fees.
Surveys.
Transfer taxes.
Owner’s title insurance.
Any amounts the seller owes that you
agree to pay, such as back taxes or inter-
est, recording or mortgage fees, charges
for improvements or repairs, and sales
commissions.

Settlement costs do not include amounts
placed in escrow for the future payment of items
such as taxes and insurance.

The following items are some settlement
fees and closing costs you cannot include in the
basis of the property.
1) Fire insurance premiums.
2) Rent for occupancy of the property before
closing.
3) Charges for utilities or other services related
to occupancy of the property before
closing.
4) Charges connected with getting a loan.
The following are examples of these
charges.
a) Points (discount points, loan origination
fees).
b) Mortgage insurance premiums.
c) Loan assumption fees.
d) Cost of a credit report.
e) Fees for an appraisal required by a lender.
5) Fees for refinancing a mortgage.

[OldJack]

I missed including in the previous quote the last paragraph of the section. I include the missing statement in bold:

The following items are some settlement
fees and closing costs you cannot include in the
basis of the property.
1) Fire insurance premiums.
2) Rent for occupancy of the property before
closing.
3) Charges for utilities or other services related
to occupancy of the property before
closing.
4) Charges connected with getting a loan.
The following are examples of these
charges.
a) Points (discount points, loan origination
fees).
b) Mortgage insurance premiums.
c) Loan assumption fees.
d) Cost of a credit report.
e) Fees for an appraisal required by a lender.
5) Fees for refinancing a mortgage.

If these costs relate to business property, items
(1) through (3) are deductible as business expenses.
Items (4) and (5) must be capitalized
as costs of getting a loan and can be deducted over
the period of the loan.

Therefore, as some items of closing may be currently deductible (1-3) not all would be and must be written off over the life of the loan. Such entry for items 4-5 would be an other asset on the business books and rate-ably expensed over the loan period.

[abby]

expenses

I was not meaning to say that things like interest and tax should be included in that analysis of loan costs, and these would be treated as expenses.

Apologies for that omission