Confusing advice on where to enter loan/closing costs for a rental property

[adamskwersky]

The advice is confusing in this regard.

Some say to enter this in "Property Profile", where you enter closing costs. Then it mainly becomes part of the cost basis and is depreciated over 27.5 years. But there is also a section in Expenses where you can enter refinance info, and then the costs get amortized with the loan. And when you refinance again, all the original closings costs can be deducted immediately.

Do I understand that correctly? So if I put it in Property Profile and it becomes part of the cost basis, what happens if I later refinance and have additional closing costs. Now I am depreciating one set of closing costs and amortizing the other.

Should I enter all my closing costs in the 'refinance' section so it gets amortized and if I refinance again I can deduct it immediately and start amortizing the additional expenses?

Or do I have to enter it in Property Profile and depreciate it, and if I refinance I just have to continue depreciating the original closing costs and amortize the new refinance costs?

[AmeliesUncle]

Closing costs that are for the the purchase itself (commissions, transfer fees, etc.) are part of the Basis.

Fees to acquire the LOAN are amortized over the life of the loan.

[adamskwersky]

Here's the problem. There is no section for entering loan information (e.g. amortization period, origination fees) for the purchase in the Property Profile pages. It is only in the refinance. So...do I just treat the initial loan as a refinance??

[adamskwersky]

This is the page for property profile. Despite what it says there is no other page in property profile for entering loan origination. There is one in the expenses section for refinancing.

[Carl]

I understand your confusion. Basically, after you work through the property profile section you "may" need to also work it through the Assets/Depreciation section. It's the Assets/Depreciation section where you will enter all of your acquisition costs of the property. One thing I do stress though, is that you pay attention to detail on each and every screen. Read the small print before you make any selections or enter any data. For most, that small print matters big time, so you set things up correctly.

Setting up your rental property correctly in the program for that first year is not an option. It's a must. Even the tiniest of mistakes will grow exponentially over time. Then when you become aware of the error years down the road (usually years latter when doing the tax return for the tax year you sold the property) the cost of fixing that error *will* be high. So if you have questions as you work it through, don't guess. ASK!

The below information is provided to help clarify things that in my opinion, the program may not clarify well enough for your specific situation.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2^nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
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 for any type of personal pleasure use 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, 2nd home, or any other personal use reasons 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.

[adamskwersky]

@Carl 

When I entered it as a refinance, it asked me all the questions about the different loan expenses.

It shows up in Assets and I do see it depreciating/amortizing. It shows up in Form 4562, Part VI "Amortization" (code section 163) and its amortizing over 30 years (length of the loan).

For $2650 in loan fees, it is having giving $7 for this year (bought the property in December 2020)

Is this the right place?

[Carl]

Yes, that's how and where it should appear.

It's on the 4562 that prints in landscape format, titled "Depreciation and Amortization Report" and is the last item under the "Amortization" heading in the description column.

it is having giving $7 for this year (bought the property in December 2020)

makes perfect sense, since you closed on the loan/acquisition in Dec 2020.