In IRS Pub. 527 (2020; Residential Rental Property) under Expenses paid to obtain a mortgage, it states:
Certain expenses you pay to obtain a mortgage on your rental property can’t be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property.
I now also found in IRS Pub. 535 (2021; Business Expenses) under Expenses paid to obtain a mortgage:
Certain expenses you pay to obtain a mortgage cannot be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. If the property mortgaged is business or income-producing property, you can amortize the costs over the life of the mortgage.
My third question is now: (1) do I amortize and deduct or do I capitalize and (2) if the latter, whether I can simply proportionally allocate these expenses to their respective cost bases.
@NCperson wrote:
- Is the interest on loans A, B, and C all fully deductible as rental/investment expenses? Yes on Schedule E
- If loan A were taken against my home instead of a rental property, is the mortgage interest on loan A still deductible as a rental/investment expense? yes, but only on Schedule E. You can not deduct the interest on schedule A, even if you later sell the rental properties and maintain the debt.
- Do I capitalize the loanexpensesfor loan A on a pro-rata basis between properties 2 and 3 (i.e. 30% toward the cost basis of prop. 2 and 70% toward prop. 3)? Not sure what you mean by 'capitalize' the expenses. you simply report the interest expense on Schedule E. What loan expenses are you refering to?
