All,
I refinanced rental property A and took out a new loan @ 300K with bank ABC on 1/31/21. After paying off original loan 100K associated with rental property A and refinancing cost 20K, net proceed to me is 180K, which was used as down payments for rental property B and C. I spent 60K on rental B and it was closed on 4/1/2021. The remaining 120K was used on rental C, which was closed on 8/1/2021. Rental B and C have their own mortgage.
I understand that I should dispose loan cost associated with original loan because the original loan was with a different bank. Now I refinanced with a new bank, bank ABC. The total refinancing cost was about 20K. To keep it simple, assume 12K was loan cost and 8K was title related charges/stamp taxes.
1. Do I allocate the loan cost 12K among the rental A, B and C since the procced was used on three rentals? If so, do I allocate 35.71% to A, 21.42% to B, and 42.87% to C? Also, rental B and C were purchased with loans and have loan cost to be amortized.
Rental A 100K 100K/280K=35.71%
Rental B 60K 60K/280K= 21.42%
Rental C 120K 120K/280K=42.87%
Refinancing Cost 20K
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Total New Loan 300K
2. What about the 8K title related charges associated with refinancing. Then should it be part of basis? Do I allocate them to all three rentals or just rental A? Do I create a separate asset and depreciate over 27.5 years (rental A was purchased a few years ago, so building/land were already placed in service and depreciated ) OR just add to basis of existing asset? Also, do I allocate it between land and building?
3. 1098 mortgage interest statement from the bank ABC shows I paid interest 12K in 2021.
I understand interest need to be traced to all three rental and 3,273.39 out of 12K interest in 2021 will not be deductible. Even though there is only one 1098 from bank ABC, should I enter three 1098 in the system with below allocated amounts so that it follow to corresponding rental units?
Rental A: 35.71%*12,000=4,285.20
Rental B: 21.42%*12,000*9months/11months=2,103.05
Rental C: 42.87%*12,000 *5 months/11months=2,338.36
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Total deductible interest on rental 8,726.61
Sorry for the long text. Appreciate your time and help.
