How to write off old closing costs after a refi for rental property?

[pnored]

@Carl  I do appreciate your comment  But I am Im not following your response in that you dont address that the program does not do automatic calculation of your unrealized gains and put them in the misc expenses section.  That is what my replies are about.  I want others to understand that may read this thread that the experience I am having is not the same as you explain.   

But on your comments if I am folllowing  it really doesnt matter what the asset is called.  It matter's how the asset is categorized. The asset is entered as a Type L Amortizable Intangibles. 

So again, following along with your instructions below and doing exactly as you suggest.  there is no "Depreciation Deduction Amount" screen, After you click yes On the "Special Handling Required?" screen, it give you the deduction for the current year (which is the screen that I have attached again) It does not enter the unrealized gains automatically in the misc  or other expenses as you suggest. . (It is categorized correctly and I indicated I sold (refinanced) the asset and I entered a date for the new loan as the sold date.) 

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...."

[pnored]

@Carl   I think I am following what you are saying now as went and added an Asset to see if I could follow what you were saying. But the asset was not entered intially incorrectly as you are suggesting. It was entered as an "amortizable intangible", not "other asset type"

[Carl]

@pnored please follow along so we can all be absolutely certain that not only are you being provided correct information, but that you understand and interpret it correctly too. I would feel terrible if the IRS flagged your return for a mistake because of a misunderstanding or misinterpretation on your end.

@AmyC I suspect we're on the same page, and just saying the same thing differently. Else, we're not talking abut the same thing. Here's my attempt to get us on the same page, regardless of whose page that is. 🙂

I initially entered the asset back in 2012 using the below instructions (more comments by me, after the instructions)

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.
- Select Code section 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

Now I've checked the above instructions in TTX 2012 desktop, and they still apply vet-batim.

I just checked the below instructions for deducting remaining fees, and it works in TTX 2022 desktop exactly as stated in those instructions "provided" the amortized asset was entered per the above instructions to the absolute letter of perfection, with the key thing being that Code Section 163: Loan Fees was selected. I don't see a need to provide screen shots at this time, since you can confirm one way or the other on your end. Please take note of my comments after the below instructions.

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 or the date you closed on the sale; whichever applies. 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...."

Now on the last screen titled "Depreciation Deduction Amount" it does show a $21 deduction for 2022, which is correct. Then it goes on to state that "in addition to to the $21, you have an additional $271 of refinance fees from your prior loan......" It also gives me the option to select "Transfer these fees for me to Other Expenses", and I do select that option and continue.

When I go to the rental expenses section and work it all the way through. The screen past the mortgage interest and other interest screens is for miscellaneous expenses, and I do see listed there an expense clearly labeled "Unrealized Refinancing Fees 2012 Refinancing Fees" with an amount of $271. Exactly what I would expect.

Are my expectations wrong maybe, and the program isn't working correctly or as intended? I really do want to be on the same page as everyone else is, with this.

[pnored]

@Carl Thanks! I suspect where my issue for not getting the same results as you is the coding - Select Code section 163:Loan Fees, then continue.  It looks like that may have not been selected even though it is listed as a L Amortizable Intangible  Being that mine were entered a few years ago initially I am not privy to see how they were entered.  (So i have made sure that I have set up my new refi fees with the section 163: :oan Fees Coding.) Then , for the issue at hand, I have calculated and manually entered the unrealized gain in the Misc Expenses section.  I really appreciate you following along with this and us seeing what we could get figured out. Again, the  initial coding  is the defining action as to whether you will receive a screen that automatically enters transfers your unrealized gains automatically. 

Thanks!

[Carl]

the initial coding is the defining action as to whether you will receive a screen that automatically enters transfers your unrealized gains automatically.

Actually, I only (and recently) suspected that Section 163 coding mattered. Seems that you have now confirmed it does matter.

The key thing is this:

Fees associated with acquisition of the loan (not with acquisition of the property) are amortized and deducted over the life of the loan. The total of all of these costs are SEC 163: Loan Fees.

I have the word "deducted" italicized, because the IRS publication (can't recall the pub number) does not use the word "deducted".  But the way it reads does make it clear that they are a permanent deduction that are not recaptured.

Now "Sec163: Loan Fees" are all expenses associated with acquisition of the loan. These expenses include things such as pre-paid interest on the loan (usually paid at the closing), Survey fees, provided a property survey was a requirement of loan approval, and anything else that is directly associated with acquiring the loan. There's some type of "title insurance" the bank requires, and that would be included also. That's usually separate from the buyer's title insurance.

Whereas any costs associated with acquiring the property are added to the cost basis of the property. These costs include things like title transfer fees paid at the courthouse to remove the seller's name form the title and replace it with the buyer's name, and could also include any unpaid property taxes or liens owed by the seller and paid by the buyer on behalf of the seller.

As a buyer, you would have both the above types of expenses. As the seller, you would not have any fees associated with loan acquisition at all.

[Steph388]

What if I don't refi and just pay off the loan?

[KrisD15]

If you pay off (early) a loan where points were being amortized over the life of the loan, you may claim all the remaining points in the tax year of the final payment. 

Select YES on the screen (in the entry of the 1098) asking about point and report that you are spreading then over the life of the loan.

On the next screen enter the remaining points and be sure to select that the loan was paid off in 2022.

The main screen will show the interest paid, in my example 150,000 PLUS the points, in my example 3,333. 

[Steph388]

I paid off the loan and did not refi.  Can I continue to amortize the remaining points & fees?

[Steph388]

I paid off the loan and did not refi.  Can I continue to amortize the remaining fees & points

[PattiF]

You would deduct all of the remaining fees and points in the year that the loan was paid off. 

Go back into the program and go to the federal section of the program.

1. Select Deductions & Credits
2. Select Mortgage Interest and Refinancing (Form 1098) 
3. Select Edit to the right of the applicable loan.
4. Continue through the screens until you see Let's get the details from your Home loan. 
5. On this page, type in 0 under box 2.  Do not enter any decimals as this may generate the error.
6. Continue through the screens until you see Was this loan paid off or refinanced with a different lender in 2022? 
7. Select Yes on this screen.

@Steph388