For starters, when you do an over ride in the TurboTax program, two things happen.
1) You can not e-file the return. You have to print, sign and mail it to the IRS. Same will hold true for the state return also, if you are required to file a state return.
2) You automatically cancel the TurboTax 100% accuracy guarantee.
Now, here's how to do it correctly on a loan payoff (not on a sale or refinance of the property) assuming that it was initially entered correctly in the assets/depreciation section of the SCH E.
In the Assets/Depreciation section elect to EDIT this item.
I expect that "Intangibles/Other Property" is already selected by default. Click Continue.
I expect that "Amortizable Intangibles" is selected by default. Click Continue.
On the "Tell us about this rental asset" screen, leave everything as is and click continue.
On the "Tell us more about this asset" screen, leave alone any selections already made, but make one additional selection and but a checkmark in the box next to "This item was sold, retired, stolen, destroyed, etc. etc. etc." and then click Continue.
On the "Select a code section" screen I'm expecting that 163: Loan Fees is already selected. Click continue.
On the Recovery Period screen I'm expecting that to be the length of the loan. Usually 30 years or 15 years. Leave it as it is and click Continue.
For the MACRS convention, leave it as is and don't change anything. Click Continue.
Now you see the amount of amortization taken in prior years. Leave it alone and click Continue.
On the "Special Handling Required?" screen, click YES. That is correct. I said click YES.
On the "Depreciation Deduction Amount" screen, select the option to "Transfer these fees for me to other expenses", then click Continue.
You're now back to the "Your Property Assets" screen.
If you want to check, then click DONE to be returned to the rental property summary screen. Then you can work through the expenses section until you get to the "VERY" "LAST" screen of that section, which is called "Any Miscellaneous Expenses?" On that screen you will see your points entered and labeled as "Unrealized Refinancing Fees Points" or something similar to that.
