Turbo tax is instructing me on how to expense prior refinance fees on my rental property IF I used a different lender when refinancing. We did not use a different lender, however, the lender sold our prior mortgage to another institution. How is this documented?
The fact that you did not use a different lender means that you must add the remaining points from the first loan to any points on the second loan if applicable, then amortize those combined points over the life of the new loan. You can deduct an amount for each month, combine all refinanced points and enter that interest under 'other interest' in the rental section of your return.
The sale of the mortgage does not affect this process. If you later refinance with another and different lender, in that year you can expense the remainder of the points on the old loan.
I don't understand the verbiage of "points". There were no points involved in the mortgage refinancing. Just the fees. Also, do not understand "interest". Let me explain. In 2017, I refinanced the residential rental property and the $1856 fees were amortized over 30.0 life. In 2019, I again refinanced the property with the same mortgage company. The 2019 refinancing fees were $2456 and are amortized over 30.0 life. Then again in 2020, I refinanced the property with the same mortgage company. Will form 4562 show three (2017, 2019, 2020) Amortization dollars? Or am I suppose to do some other calculation?
These won't show up as separate line items on your 4562 but the 2020 amortization costs will show up on line 42. Line 43 will be a total of prior year's amortization costs that occurred before 2020. You don't need to do any special calculations. These will show up as separate line items in the depreciation report however.
Thank you, Dave.
Let me be clear, so I don't have to do any calculations because TurboTax does it for me, correct?
Line 42 (Amortization of costs that begins during your 2020 tax year) shows 2020 Refinancing Fees of $58.
Line 43 (Amortization of costs that began before your 2020 tax year) of $144.
Dave,
Will I have to amend my prior income tax returns since I didn't remove the amortized closing fees from 2017 and 2019?
If TurboTax is correct in the fees that were tracked, you do not need to do an amend.
Make sure that you keep records to have available if or when you sell the rental property.
The costs associated with obtaining a mortgage on rental property are amortized (spread out) over the life of the loan.