I have a rental property and was amortizing the closing costs from the original home purchase. Now I have refinanced the property and I am going to amortize the new closing costs associated with the refi. However, how do I take the expense in Turbo Tax for original house purchase closing costs associated with the old loan?
To remove and list prior amortization as an expense.
Go to Your Property Assets page- Along with your rental, you should see your original refinancing fees and the depreciation amount.
End result: Current depreciation amount for old loan. Remaining unamortized balance to be transferred to other expense line. Your old fees may still show on the asset page if you still have some depreciation for the current year, but it will not be listed there in the next year
Add your New Loan Fees as a new asset. On the Your Property Assets page, click Add an Asset link to enter data for new loan fees.
How your previously amortizing closing costs are treated, depends on the source of the refi loan.
If you refi'd through the same lender, then whatever you have left to amortize on the old loan, gets added to the amortized costs of the new loan and that new total is amortized over the life of the loan. (Or is it 15 years? I'm honestly not sure on the time frame.)
If you refi-d through a new lender, then the remaining costs to be amortized on the old loan are fully deductible in the year of the refi.
Pattif12:
So I am using TurboTax Business 2020 since I am filing for an LLC. I don't see the same screen and options you describe.
What I have done is went to the Federal Taxes>Rental Real Estate>clicked edit on the property in question>clicked "Update" on the "Dispose of Rental Real Estate Property" section at the bottom. Clicked "Edit" on the asset to dispose of. Now it gave me choices of (1) sold (2) given away or (3) abandoned. I chose abandoned...I mean I would have preferred a "retired" option but without that option I thought abandoned was the better choice of the three options. It asks for the date of abandonment and then proceeds to calculate a partial year's amort. Which is fine. But what it doesn't do is take the remaining asset value to other expense on my income statement so I manually did that through the "General Expense" section and entered a line for the write off of the closing costs.
Does this sound OK?
Carl:
So I did two refis. One with same lender, and one with new lender.
For the one with the same lender I'm not sure how to "move" the remaining asset value of the old closing costs to the new one without messing with the old asset , which turbo tax doesn't seem to want me to do. So I guess I will just lave the old closing costs amortizing on its original schedule.. It's only < 2 years difference.
Do you know where in the IRS code does it state you have to carry the original closing costs if you refi with the same lender for a rental property?
Thanks!
See IRS Publication 936 at https://www.irs.gov/pub/irs-pdf/p936.pdf
Page 8 first column
Mortgage ending early.If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. However, if you re-finance the mortgage with the same lender, you can't deduct any remaining balance of spread points. Instead, deduct the remaining balance over the term of the new loan.A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event.
Could you want to share some IRS document about this item? I don't know how I should treat the title cost on my old loan's closing document.
Hi Carl, I've refinance my rental property with same lender on 2020, the old refinance fee didn't automatically add to my new loan. can I add it to my 2021 return manually? which category do I put the old fee? thanks
Hi Carl, I've refinance my rental property with same lender on 2020,
Then you can not deduct the remaining amortized fees on the old loan, on your 2020 taxes.
the old refinance fee didn't automatically add to my new loan.
They really don't need to. Assuming the asset transferred from the 2019 return to the 2020 return, you can just leave that asset "as is" and it will continue to be deducted over the life of the original, now paid off loan.
can I add it to my 2021 return manually?
If you elect, you can add them to your new financing fees on the new loan. But then you have to delete the amortization entry for those fees on the old loan from the assets/depreciation section.
which category do I put the old fee?
what remains of your old refinancing fees don't go in a "category" per-se in your specific case, since you refinanced with the same lender. There shoud already be an entry in the assets/depreciation section for those fees (as well as the fees on the new loan) and are specifically classified as financing fees so that they are deducted over the life of the loan, and not depreciated. Remember, depreciated assets are recaptured and taxed as some point, where are amortized assets are deducted over time with that deduction being permanent and forever.
To specify, (which is something the IRS pubs do not do very well) tangible assets (such as the property itself) are depreciated over time. Whenever you sell the property and it's assets, that depreciation is recaptured and taxed in the year of sale.
Your intangible assets (which is what refinancing fees are) are amortized and deducted over time, as apposed to being depreciated over time. In the tax year you sell the property any remaining amortized costs are fully deductible in the year of sale. There's other situations where they're fully deductible too, such as if you refinance the property with a different lender.
Since you refinanced with the same lender, your remaining amortized costs on the old loan are not fully deductible in the year of refinance. You can either:
1) Add them to your refi costs of the new loan and that new total gets deducted over the life of that new loan, or;
2) Leave the original entry for those amortized costs on the old loan and they will continue to be deducted over the original lifespan of that old loan.
thanks for the detail clarification, very helpful. I will leave it with my old loan, it would be easier for me.
Hello, I have the same question. I do not see the special treatment option in TT Business 2021. Please advise.
These fees are amortized over the life of the loan. Although it doesn't seem logical, refinance fees and mortgage points are also entered in the Assets/Depreciation section. The IRS considers these amortizable intangibles and accounting rules dictate that those are to be depreciated instead of deducted as an expense. The number of months to use if the number of months for the loan repayment.
The IRS considers these amortizable intangibles and accounting rules dictate that those are to be depreciated instead of deducted as an expense.
Can you clarify that? An amortized intangible is "deducted" over time - not depreciated. At least for financing and other fees associated with acquisition of the loan on rental property. Then when you sell, any remaining fees not yet deducted are fully deductible in the year of the sale.
Or are we saying the same thing in different ways?
I understand that the costs from my new mortgage are amortized over the life of the loan (similar to what I did previously in the old mortgage). I assume the unamortized costs from the old one hit the P&L now; if so, how do I accurately show this in TT Business?
Perhaps. When a mortgage loan is refinanced and it is with a different lender, then any remaining points that have not been deducted under the first lender can be deducted in the year of refinance. You can add this expense under miscellaneous expenses and use a label similar to 'loan payoff deductible fees'.
If a mortgage loan is refinanced with the same lender, any remaining points must be added to the points on the new loan if applicable, then divided by the loan term to determine the monthly amount you can deduct. If there is a full year of mortgage payments then it would be 12 months deduction as points. For the first year it would be the number of months remaining in the year beginning with the first month payments begin and ending in December of that year.
I also confirm that Turbo Tax, at this time (April 2022) in Turbo Tax Premier, does not properly expense the remaining points from the old loan when refinancing with a new loan. Here are my steps.
I edited the mortgage points item in my Schedule E Assets section:
- marked them as Sold / Retired etc. In further questions:
- Do they require Special Handling? No.
- Date or retirement / sale: closing date of new refi loan.
- Sale price: LEAVE BLANK!!! . Sale price portion used for business: $0.
--> Sale price must be blank. If I set it to 0 then Turbo Tax complains .. something about form 179 and that intangibles must have the sale price blank..
- Finally I go to Miscellaneous section in Expenses and add a new line item as "Deductable remaining old loan costs".
Note that Turbo Tax amortizes a small portion of the old loan in the Assets section as above and prorates to the months in the year before the month of refi loan. This has to be taken into the account when calculating the remaining portion of the loan to be expensed in Miscellaneous.
This situation was corrected for me in TurboTax as of 17 April 2022. You Do have to go in and edit the previous refinance entry to indicate that the 'asset' was sold and provide the date and answer "no" special handling question, etc. The expense corresponding to the remaining balance that hadn't been depreciated was automatically generated as an entry in the miscellaneous expenses section for that property as "Unrealized Refinancing Fees..." Furthermore, the amount for this miscellaneous expense is calculated in accordance with the note you made below about TurboTax still amortizing the prorated amount corresponding to the month of the year that the loan was refinanced in. So it all checked out for me.
It's as if they read your Comment and addressed each issue exactly as you described. They still need to fix the fact that you have to manually go into the entry for the refinance in the Asset section and indicate that it was sold (even though TurboTax had already asked if this property had been refinanced this year). But at least I'm glad they do the math for you and create the entry in the Miscellaneous expenses section for you.
Here's two boilerplates. One for how to enter points/refi fees so they are amortized/deducted. The other is how to deal with the deduction of remaining points on a sale or refi, assuming they were entered correctly into the program from the start.
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
DEDUCT FINANCING FEES OF OLD LOAN WHEN REFINANCING OR SELLING
In the Assets/Depreciation section for that rental property, elect to edit/update the entry for your points.
- On the "Review Information" screen click Continue.
- On the "Did you stop using this asset 2021?" screen, click YES.
- On the "Disposition Information" screen, in the disposition date box enter the date you closed on the new loan. Then click Continue.
- On the "Special Handling Required?" screen, click YES.
- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.
You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."
Thanks Carl, great post. I'll bookmark these instructions to reference for my refinances next year. Cheers!
Thank you both. It seems that my mistake was to say "No" to "Requires Special Handling?".
If Turbo Tax doesn't have an example about Refi points in the help section for the Special Handling question, it would be great if they add it in for the sake of new users. If they have it and I missed, then it's my mistake once again.
That's right, answering "Yes" to special handling apparently sets it up the correct way. Really don't know why TurboTax doesn't improve the user experience for Premier users. If they just pulled five people off the call center and had them run through a couple rental property/private business/crypto scenarios instead of answering calls, the feedback would improve the program immensely. Many of these issues are super obvious and should be easy fix once they receive the feedback from their 'testers'.
@Carl In 2022 Desktop Premier their is an entire section of question after you enter your expenses. It ask if you refinanced and it takes care of the new loan for you totally automatic. However, I'm still having issue with the second step of dealing with your old points (new lender). At the end of entering your new loan fees/points it ask you if you have old points. Then it kind of just drops you at this point. But help has the copy/pasted info below on that screen. But nothing is automatic when you get to this point. I think I have gotten it figured out. I did read on another thread where when you edit the old points enter $0 for the amount that were sold for when disposed of. This does accomplish deducting the remaining points that have not been deducted but doesn't seem right to me. It think I will try to follow the below instructions.
Parrish
Refinance Fees from Prior Refinances
Charges paid by a borrower to get a mortgage refinance for a rental must be amortized over the life of the loan. In the year you refinance to a new loan (and retire the prior loan), any existing refinance fees from any prior refinances become an expense and need to be entered in as an "Other Expense" item. If the mortgage is financed with the same lender, the unamortized fees on the first loan must be deducted over the term of the new loan.
How Do I Do This in TurboTax?
Points are entered in the same area of interview where you track the depreciation of your rental property, or rental furnishings. Go to the Asset/Depreciation topic and indicate your prior loan fees are no longer in service. As you go through this area of interview you will be given the remaining fees that have not been expensed or amortized. These additional expenses need to be entered as an "Other Expense" item. TurboTax will help guide you along the way. Completing this is a three-step process:
1) Enter your new refinancing information as an amortizable intangible
2) Navigate to the Depreciation Section in Rentals and indicate you have retired ("disposed" of) the old refinance fees
3) Calculate the unused portion of the old refinance fees and enter them as an "Other Expense"
@Carl In 2022 Premier desktop after you click yes to the special handling it does not do anything but say what your deduction for that year is (yes, I put in the date of my new loan) The attached capture is what it gives you after you say yes to special handling. And it does not enter the unrealized amount into other expenses. Obviously this part of Turbotax needs some help!
Parrish
In 2022 Premier desktop after you click yes to the special handling it does not do anything but say what your deduction for that year is
It also states the numbers will be transferred to the correct forms for you. If you'll look in the expenses section for that property and take a peek in the Miscellaneous Expenses section, you'll see an entry there for $78.
Hi @Carl Thanks for you response. Actually $78 is the calculation for the year and it does transfer that to the appropriate section. But it does nothing with the unrealized gains as you suggested. And I did answer that the asset was sold on the date the new Re-fi closed. I manually went to Other Expenses for the property and added the unrealized gains. This was my experience with Premier Desktop 2022
- On the "Special Handling Required?" screen, click YES. (Only gives me that years deduction even after I entered that I sold the asset and then does not address unrealized gains)
- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.
You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."