In 2019, I did a cash out refi for my rental property. Because 65.83% of the refi proceeds were used to pay down the mortgage of my personal home, it was my understanding that only 34.17% of the $7,522 refinancing fees (equal to $2,570) could be amortized as a rental expense over the 30-year mortgage period. In my 2019 tax return, I entered $7,522 as the Cost of the refinancing fees and 34.17% as the Business %. TurboTax correctly computed the pro rata amortization for 2019 (1/30th of $2,570 * 3 months = $21) and full year amortization for 2020 ($86).
On 5/11/21, I sold the rental property, and so I need to expense 4 months of amortization for 2021 ($29) and also expense the remaining $2,434 unamortized refinancing fees ($2,570 - $21 - $86 - $29). TurboTax correctly carried forward the original $7,522 Cost and 34.17% Business % for this intangible asset to my 2021 tax return. It also correctly computed $29 for 2021 amortization on the Depreciation Deduction Amount screen. However, on that screen it also indicated that "In addition to the $29, you still have an additional $7,386 of refinance fees from your prior loan. Enter this amount as other expense for this rental." My two choices are to 1) "Transfer these fees for me to Other Expenses" or 2) "I'll enter these fees on my own later/I refinanced with the same lender."
I selected the first option, thinking that TurboTax would incorporate the 34.17% Business % into its calculation and therefore transfer only $2,434 to Other Expenses. However, it transferred the entire $7,386 instead.
I would like to know whether 1) this is an error in TurboTax; 2) TurboTax purposefully disregards the Business % and it is up to me to edit the figure to $2,434 (which I tested and the edit is accepted); 3) I should have selected the second option to enter the $2,434 myself; or 4) I am able to deduct the full $7,386 as Other Expenses due to the property being sold. I had already indicated in TurboTax that the rental property qualified as my primary residence for 2 of the last 5 years; I don't know whether that had any relevance as far as TurboTax determining the figure to transfer to Other Expenses.
If I choose #2, is this considered an override in TurboTax? And would this automatically cancel the TurboTax 100% accuracy guarantee?
