I have 2 different loans that I split the payments into 3 categories for each payment. One is to an escrow account which pays my prop taxes and insurance on an annual basis, one payment is to principle for the loan, the last is for the interest. When I classify principle and interest those properly account in my cashflow statement though my income statement does not show them for tax purposes. The escrow payments show up on the income statement, but do not reduce my monthly cashflow. How do I need to categorize them to show up correctly?
@mccartneyproperties Good questions. Mortgage payment splits, escrows, etc. are discussed in detail in the Split & Categorize Mortgage Payments help article. Take a look and reply here with any follow-up questions.
Note that mortgage interest is only shown on the Net Cash Flow report, not the Income Statement. Our Income Statement is focused on operational outcomes, while all financing activities are shown on the NCF instead. Also keep in mind that payments into escrow accounts are generally reported as “Transfers” since they are not actual expenses. Payments from escrows to cover taxes, insurance, etc. can be recorded as actual expenses when they occur, in order to tie out your reporting.
So to properly account for the escrow transfers on tax I should put the payment I make into the category of general escrow transfers, then the actual payments from that escrow account should be categorized as “Property Taxes” or “Rental Dwelling” insurance payments, not transfers?
@mccartneyproperties Just to clarify, the approach discussed above is to categorize payments you make into escrow accounts as “Money Out” under Transfers. If you then receive a disbursement from this account (or your lender pays taxes or insurance directly), that’s a “Money In” transaction under Transfers AND it’s an actual expense (Money Out) transaction under whatever actual expense category was paid. Does that clear things up?
I think so. If I’m reading correctly that would mean there would be 1 (or multiple transactions) for adding to the escrow account. Then 1 transfer back to my account in the balance of the expense. Then 1 payment to taxes/insurance as the expense. It doesn’t look like I can pay the expense directly from the escrow transfers category, so I’d need the two transactions.
@mccartneyproperties You’ve got it figured out!