Here's the scenario:
- In 2016, the taxpayer refinanced the mortgage for their rental property - let's assume the total 2016 refinance cost was $15,000
- The Refinance Costs was subsequently amortized over 30 years, therefore, the taxpayer has been deducting $500 per year in their tax return. This means, for the years 2016, 2017, 2018 and 2019, the taxpayer has in total deducted 4 years x $500 = $2,000 worth of amortized refinance costs; therefore, for 2020, they had $15,000 less $2,000 = $13,000 remaining balance of unamortized refinance costs.
- In 2020, the taxpayer refinanced that loan, paying it off in full, with a different lender. As a result, the taxpayer incurred new refinance costs, of say $10,000 related to the 2020 loan (also a 30 year mortgage)
In Turbotax, it says that if the new loan (obtained in 2020) is with the same lender as the refinanced loan (from 2016), then the taxpayer IS REQUIRED to continue amortizing the 2016 refinance costs based on the terms of the new loan. In other words, the $13,000 is added to $10,000 = $23,000 which is then amortized over 30 years - or $767 amortized refinance costs per year.
However, if the new loan was refinanced with a different lender, then the entire $13,000 could be all deducted in the same tax year.
But here's my question:
Assuming our taxpayer did the 2020 refinance with a different lender, can the taxpayer STILL CHOOSE to continue amortizing the 2016 Refinance cost's remaining balance of $13,000 "as if" they refinanced with the same lender?
Or is the taxpayer forced to deduct the entire $13,000 as an expense in 2020?
I'm asking this because, for some taxpayers, their income in 2020 wasn't very high and they expect higher income in the future. Therefore, the depreciation/amortization expense would be more beneficial to them in future years, than getting it all written off in 2020.
So I just want to know if the taxpayer has the option to choose to continue amortizing previous Refinance costs instead of writing it all off in a single year.
Any insight would be great! Thanks.
