I have a rental property. I'd like to set up my books such that:
- the cost basis depreciable value of the house is reflected in an account,
- the annual depreciation is recorded sensibly,
- the initial sale price is readily reportable, and
- the balance sheet shows the (approximate) market value of the property were I to sell it today.
Is there a standard pattern for this? Objectives 1 and 2 together are straightforward, as are 3 and 4. However, combining all four into one set of books isn't obvious to me. One approach would be to record it as a set of assets, like:
- Assets:RentalX:Cost Basis
- Assets:RentalX:Market Valuation
I'd then record the cost basis as the opening balance in the first account. The remainder of the purchase price would go in the Land account. Depreciation would be expensed from the Cost Basis account annually and offset by a symmetric entry in Market Valuation (as a transfer to retained earnings or some other equity account?). Periodic updates to the plausible market value of the property would also get recorded in Market Valuation.
Is this a reasonable solution? Or is there a more standard way to do this?