After an audit of our lender's records, they discovered that we did not receive our Good Faith Estimate by the time stated, so we were reimbursed our closing costs. Wonderful, right? Well, I now do not know how to handle this. This is a reimbursement of closing costs on a rental property we purchased several years ago. Title fees, recording fee and pest inspection fees were added to the basis. Points, appraisal fee, and other fees associated with obtaining financing were amortized. So how do we deal with this? Do we claim the reimbursement as income? Do we adjust the basis of our rental property & remove amortization of closing cost expenses? Do we need to go back and file amended returns with closing costs removed?
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Generally the reimbursement would not be income, but rather an adjustment of the basis click here for a Turbotax article on a related matter.
However, if you have been amortizing the closing costs, technically the amortization has been overstated. Although it is a lot of work, you could file Form 3115 Application for Change in Account Method, which corrects the previous over amortization, and adjust the closing costs and amortization for current and future years.
Generally the reimbursement would not be income, but rather an adjustment of the basis click here for a Turbotax article on a related matter.
However, if you have been amortizing the closing costs, technically the amortization has been overstated. Although it is a lot of work, you could file Form 3115 Application for Change in Account Method, which corrects the previous over amortization, and adjust the closing costs and amortization for current and future years.
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