the initial coding is the defining action as to whether you will receive a screen that automatically enters transfers your unrealized gains automatically.
Actually, I only (and recently) suspected that Section 163 coding mattered. Seems that you have now confirmed it does matter.
The key thing is this:
Fees associated with acquisition of the loan (not with acquisition of the property) are amortized and deducted over the life of the loan. The total of all of these costs are SEC 163: Loan Fees.
I have the word "deducted" italicized, because the IRS publication (can't recall the pub number) does not use the word "deducted". But the way it reads does make it clear that they are a permanent deduction that are not recaptured.
Now "Sec163: Loan Fees" are all expenses associated with acquisition of the loan. These expenses include things such as pre-paid interest on the loan (usually paid at the closing), Survey fees, provided a property survey was a requirement of loan approval, and anything else that is directly associated with acquiring the loan. There's some type of "title insurance" the bank requires, and that would be included also. That's usually separate from the buyer's title insurance.
Whereas any costs associated with acquiring the property are added to the cost basis of the property. These costs include things like title transfer fees paid at the courthouse to remove the seller's name form the title and replace it with the buyer's name, and could also include any unpaid property taxes or liens owed by the seller and paid by the buyer on behalf of the seller.
As a buyer, you would have both the above types of expenses. As the seller, you would not have any fees associated with loan acquisition at all.
