First-time rental owner here, renting out a home we had to leave that is financed with a VA loan, and wanting to make sure I get this right the first time. Not seeing a code section reference in the instructions for Form 4562, Part VI for amortization, I dug to see the source for myself. Thanks for the reference.
However, by my reading of the applicable code section, VA loan funding fees are not eligible for amortization as a business expense, but PMI would be. Passes the sense check, since VA loans are intended for a primary residence you live in.
- See 26 USC Section 163(h)(4)(E&F)
- The key excerpt reads: "(F) Special rules for prepaid qualified mortgage insurance. Any amount paid by the taxpayer for qualified mortgage insurance the payment of which extends to periods that are after the close of the taxable year in which such amount is paid shall be chargeable to capital account and shall be treated as paid in such periods to which so allocated. No deduction shall be allowed for the unamortized balance of such account if such mortgage is satisfied before the end of its term." Fine so far, but it goes on to say :"... The preceding sentences shall not apply to amounts paid for qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service."
Looks like I can't amortize the funding fee, which is the fee for prepaid mortgage insurance provided by the VA. If I'm wrong, please explain. I don't need the deduction right now, but want to claim it if I legitimately can be doing so.
