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How do you Detemining the cost basis of property (real estate) purchased and rehabbed while getting a developer fee?

Jeff Sheffler's Profile

We have received grant funds to purchase and rehab real estate (condos or single family homes) to rent out to qualifying individuals.  Part of the proceeds received include a "developer fee" in the project budget to do this work, besides other externanl vendors.   Is this developer fee used as part of my cost basis for the property and/or included as revenue from the project?  or should the revenue be an offset to the "salary expense" (which should be a part of the cost basis) for the workers to perfrom this development?  Any suggestions would be greatly appreciated.


Robert Barker
Title: Professor of Accounting
Company: Calif. State Univ., Northridge
(Professor of Accounting, Calif. State Univ., Northridge) |

Jeff, I claim no expertise in accounting for real estate projects such as you describe, but will suggest a logical approach. If the "developer fee" comes with no strings attached (e.g., ownership rights of rents or the proceeds from later sale), it seems the fee would be (incentive) revenue for your firm. As such, use of those funds should be no different than use of other revenue sources, so related expenditures should be capitalizable, in my opinion.

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