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jbpatel5
Level 2

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

Hello All,

 

Can I Deduct an Appraisal Fee for an "Investment Property"? If so, does it have to be amortized over the life of the loan (30-yrs) or can I take the full deduction in the year it was paid?

 

Thank You!

7 Replies
Anonymous
Not applicable

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

why was the purpose of the appraised?   and what type of property?    

jbpatel5
Level 2

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

I recently purchased an investment property and so as usual, the lender ordered an appraisal before approving me for the loan. It is an single family residential property. 

Anonymous
Not applicable

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

Amortizable Closing Costs
When you take out a mortgage, the IRS lets you write off your interest, but you will have to amortize your closing costs over the life of the loan. Closing costs like prepaid interest, loan origination fees and even "junk" charges like appraisal fees or documentation fees all get divided over the life of your loan. If you took out a 25-year amortization loan with a 10-year term and you spent $16,000 to do it, you would divide the $16,000 by 10 to find your yearly amortization allowance. You can then write off $1,600 per year during the life of your loan

 

here's a link to a discussion 

https://ttlc.intuit.com/community/credits-and-deductions/help/what-can-i-deduct-when-refinancing-ren...

 

many threads use "deductible".  what they don't clarify is whether they are immediately deductible or deductible over a specific period.

 

 

Critter
Level 15

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

If this was part of the closing costs (which is normal) then all the cost to close are added to the total cost basis for depreciation purposes.  

Carl
Level 15

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

Basically, any expenses incurred to secure the loan (not the property) are amortized and deducted over the life of the loan. This would be expenses paid for your credit check pull, appraisal fees *if* required by the bank in order to secure the loan (and it was), as well as what the bank calls "origination fees" which may or may not include "points" (which is nothing more than pre-paid interest on the loan.)

Whereas expenses incurred in acquistion of the property are capitalized and depreciated 27.5 years (for rental property). These would be expenses such as title transfer fees, title insurance and things like documentary stamps if your county still does that.

- Amortized expenses are "deducted" over the life of the loan.

- Capitalized expenses are "depreciated" over 27.5 years (as per the MACRS schedule for residential rental property.)

To help you out, if this is your first year reporting rental income/expenses on a tax return, the below information will clarify things for you, that (in my opinion) the program does not.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence before, then this date is the day AFTER you moved out.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter "could" have moved in. That should be your "in service" date if you were asked for that. Vacant periods between renters count also PROVIDED you did not live in the house for one single day during said period of vacancy.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days you lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence or 2nd home, after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL POPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that add value to the property. Expenses for this are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria must be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must add "real" value to the property. In other words, when  the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and it's assets in the useable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent are not deductible.

Repair

Those expenses incurred to return the property or it's assets to the same useable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become “a material part of” the property, from the perspective of a property appraiser, it doesn’t add “real value” to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a  2 bedroom house into a 3 bedroom house adds “real value”. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

 

jbpatel5
Level 2

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

Thank you all for clarification. Really appreciate it

Omar
Level 2

Can I Deduct Appraisal Fee for my Investment Property? If so, does I have to amortized over the life of the loan?

Where are the appraisal and other fees entered? In the New Rental Property Worksheet, under the Increases to Basis section part 2 - Settlement fees or closing costs, there's no entry that seems to apply for this kind of fees. Should the fees for the appraisal, credit report, etc. be added together and specified in the Other increases to basis box?

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