Mortgage refinance for Rental property

[MaverickAl]

I have had a rental property since 2017 and I refinance the mortgage in 2021, how should I write off my closing cost expenses( settlement fee, appraisal, title insurance, and ....)  ?  should I add the cost to my basis or should I amortize it for 30 years? if I have to amortize it which amortization code should I choose?

[Carl]

For residential rental property, your closing costs are amortized and deducted over the life of the loan.  There's two types of closing costs. Each are handled differently.

- Those costs associated with acquisition of the property are added to the cost basis of the property. In the case of a refinance, you don't have any of these costs.

- Those costs associated with acquisition of the loan are amortized and deducted over the life of the loan.

If you refinance with the same lender, then the closing costs remaining to be deducted from the original loan are added to the closing costs of the new loan. The total is amortized and deducted over the life of the new loan.

If you refinance with a different lender, then the closing costs remaining to be deducted from the old loan are fully deductible in the year of the refinance.

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

This applies "ONLY" if you refinanced the loan with a different lender.

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...."

[RobertB4444]

Any taxes in the closing costs are deductible immediately.  However, the rest of the costs are bundled together as part of the basis of the property and depreciated like rental property over the life of the loan.

Here is a TurboTax article on this very thing.

[Carl]

Just to reiterate for clarity:

Any taxes in the closing costs are deductible immediately.

Generally, such an item will be clearly identified with the word "TAX" in the item description. Most closing documents I've seen (and there are many, many, MANY, variations) clearly identified any taxes paid at closing, as items completely separate from closing costs. For example, on the HUD-1 closing statement, all taxes are clearly identified as such on lines 106-112 and 406-412, 210-219, and 510-519. They have nothing to do "per-se" with closing costs. The amortized charges associated with the loan are lines 801-811.

https://www.hud.gov/sites/documents/1.PDF