@wleuter
Here I am going to admit some ignorance. I did some research, and I think I have to go against my prior answer, and refinance costs don't adjust the basis. But there is a point that I am uncertain about. I will paste below what the IRS says in publication 551 Basis of Assets.
Essentially, costs of buying a property that you would have to pay even if you paid cash are adjustments to basis, but closing costs associated with obtaining a mortgage are not. So things like abstract and title fees and other required legal fees are includable. Later, it says that refinance charges are not includable in the basis. But, a refinance often includes a fresh title search and other legal fees, as required by the second bank. So I am really not sure if those fees would be includable or not. My guess is not, because they weren't "costs you paid to acquire the property even if you paid cash", since you already owned the property.
Even later, the IRS says that refinance costs are amortized over the life of the new loan (1/30th per year for a 30 year mortgage, for example). But you didn't refinance a rental property, you refinanced a personal home that you later turned into a rental. So I don't think you can argue the refinance was business related, unless the refinance was clearly part of a plan you made to turn the home into a rental (such as, you needed to change the terms of the mortgage to allow it to be rented out). If the refinance was business related, I don't know where in Turbotax you would enter those amortized refinance costs.
https://www.irs.gov/publications/p551
Settlement costs.
Your basis includes the settlement fees and closing costs for buying property. You can't include in your basis the fees and costs for getting a loan on property. A fee for buying property is a cost that must be paid even if you bought the property for cash.
The following items are some of the settlement fees or closing costs you can include in the basis of your property.
-
Abstract fees (abstract of title fees).
-
Charges for installing utility services.
-
Legal fees (including title search and preparation of the sales contract and deed).
-
Recording fees.
-
Surveys.
-
Transfer taxes.
-
Owner's title insurance.
-
Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
Settlement costs don't include amounts placed in escrow for the future payment of items such as taxes and insurance.
The following items are some settlement fees and closing costs you can't include in the basis of the property.
-
Casualty insurance premiums.
-
Rent for occupancy of the property before closing.
-
Charges for utilities or other services related to occupancy of the property before closing.
-
Charges connected with getting a loan. The following are examples of these charges.
-
Points (discount points, loan origination fees).
-
Mortgage insurance premiums.
-
Loan assumption fees.
-
Cost of a credit report.
-
Fees for an appraisal required by a lender.
-
Fees for refinancing a mortgage.
If these costs relate to business property, items (1) through (3) are deductible as business expenses. Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan.
