You have two types of costs or expenses associated with purchasing real estate.
- Expenses associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. Examples include loan application fees and survey fees if the lender required a survey as a condition of loan approval.
- Expenses associated with acquisition of the property are added to the cost basis of the property and depreciated over time. Examples include title transfer fees paid at the courthouse to remove the seller's name from the deed and replace it with this buyer's name. These are sometimes referred to as documentary stamps.
As you work things through the program, you're asked for details such as abstract fees, recording fees and the such. The program will generally take care of things for you. However, there are times when it won't depending on the specific and explicit situation. In that case, you have to enter your amortized costs separately.
One thing to note is that when you refinance a property, you will generally only have loan acquisition fees. Since you already acquired the property when originally purchased, there will not be any property acquisition fees.
Once things are entered correctly in the program, you should see in the Assets/Deprecation section, as well as on the form 4562 titled "Depreciation and Amortization Report" that prints in landscape format, and entry under the Asset Description column called something like "Amortization". Then under that something like "financing fees" along with all the details across that row.
If you have to enter your financing fees manually, here's how.
ENTERING POINTS
here's how to enter the points in the Assets/Depreciation section.. (does not apply to entering the property itself, or any other property assets.)
- Select the Add and Asset button. (go straight to the asset summary if presented that option)
- Select Intangibles/Other Property, then continue.
- Select Amortizable Intangibles, then continue.
- Describe it as something like "2021 Financing Fees". Then enter the amount, and the closing date of the loan. Then continue.
- Select "purchased new", then "100% business use", enter the closing date of the loan (again), then continue.
- Code section is 163:Loan Fees, then continue.
- Useful Life in Years is the length of the loan, then continue.
- You can "show details" if you like. Then continue, and that does it
