Depreciation on Rental property - changes after refinancing

[ssnewton]

In 2019 we bought a property that we used as a short term rental.  Since this was new for us we used a tax prep service last year.    So last year, our taxes start taking depreciation on the property over 27.5 years at a rate of 2.273.  This spring, we refinanced.  

When I go under the  Assets/Depreciation of the property section it does not give me the option to depreciate the unit (part of a multiunit complex).  Currently we have a net loss with the property in Turbotax.  Did the refinancing affect our ability to claim depreciation, is it not an option since we are at a loss or am I doing something incorrectly?

Thanks!

[ColeenD3]

No, refinancing doesn't affect anything. Explain what you mean by short-term rental. Is there any personal use? You say it is part of a multi-unit. Does this mean that you have a condo in a building of other condos? Is it a multi-unit where you live in one of the units and rent the other?

[Carl]

You are depreciating the property based on what you *originally* paid for the property, or it's FMV on the date placed in service. Whichever is "LOWER".

Refinancing a business property has absolutely no effect on your cost basis used for depreciation. Nothing changes on that front.

[ssnewton]

It is a condo in a building with other condos.  We use it less than 14 days for personal use.  We do not live there, we live a little over 2 hours away.  

[ssnewton]

Our original tax person we used last year based it on the amount paid for the property.  

So why won't Turbotax run me through the depreciation?

[ssnewton]

I figured it out.

I went back into the depreciation section.  Within this section it had the refinance as a single item in the property.  I then had to add a second addition into the same property that allowed me to enter the original value of the property and depreciate it as before.

Thanks!

[Carl]

Are you sure that single item wasn't your refi costs? When you refinance, your refi costs (usually called points) are amortized and deducted over the life of the new loan. The original asset entry does not change at all.

add a second addition into the same property that allowed me to enter the original value of the property and depreciate it as before.

What do you mean by second addition to depreciate? There is nothing to add to be depreciated. The only thing to add are your refi costs if the program did not add them for you automatically. Then your refi costs are amortized and deducted over the life of the loan. They are "not" depreciated.

[Dlieu]

What refinacing costs are tax deductible for rental property?

[ThomasM125]

All of the costs are deductible, but not necessarily in the year you refinance the property. The closing costs associated with obtaining the mortgage are entered in TurboTax as such and amortized over the life of the mortgage. 

Real estate taxes, mortgage interest/points and property insurance are deductible as expenses in the current year. Costs associated with buying the property such as title search and recording fees are depreciated the same as the property itself.

You can learn more here:

Deducting rental closing costs 

[Carl]

Since this was a refi, the only expenses you will have are loan acquisition costs. There are no property or other acquisition costs. The loan costs are amortized and deducted over the life of the loan.

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