How do I expense the remaining amortization of loan fees (points) on a rental property (Schedule E)?

[jess109]

I satisfied the mortgage on a rental property that I sold in 2016.  The loan fees (points) were being amortized over the life of the loan.  Where on schedule E would I deduct the remaining amortization?  What custom description, if applicable, would I use?

[view2 · Accepted solution]

"Your asset summary" page for your rental [click edit beside the asset entry] What you named the entry "points" "loan fees" etc

continue through several screens to "Tell us About this Rental Asset"

Mark you sold and then the date paid off in the drop down screen.

continue through several more screens to "Special Handling Required"

Click the  "YES" "Intangible asset not a 1245 property" is the reason.

then "Depreciation Deduction Amount"

then select  "Transfer these fees for me to other Expenses"

The loan was paid off  .

[jess109]

Thank you for your reply.  This is exactly what I did however, the description that tt populates on line 19 other expenses reads: "Unrealized Refinancing Fees Loan Fees".  These fees were not related to a refinance but rather a satisfaction of the mortgage, should I just delete that description and use "Loan Fees" what would be an acceptable description?

[view2]

Your welcome

Let Turbotax description  ride you got the deduction that was what we were after.

[Echo2It]

Does this sequence of steps work on Turbotax for Business 2020?  The final review complains that the asset is not section 1245 and can't be disposed of.   Also, I was never given the exception prompt when disposing of the Loan Fee entry.

Thanks.

[brucebousfield]

I also had the same issue with disposing of an amortized lease fee on a rental property I just sold. I replied to the question about not being a 1245 item with "Yes", but never got any other questions about how to deal with the remaining amortized expense. When I delved into the TurboTax help screens it said to overide the current year amortization amount with the whole amount remaining. I did that in forms and it seems to work fine. The full amount showed up in schedule E under amortization.

[Echo2It]

Thanks.  Overriding sounds reasonable, and it seems to work with all the numbers in the right places.

However, I'm concerned that Turbotax is reporting that the form is not finished, I guess because of the override.  In the past Turbotax has balked at e-filing when there are overrides.  Last year I think I e-filed a state return with an override.  I hope I'll be able to do it this year with that override.

Thank you.

[Echo2It]

Just a note on Turbotax flagging the override as an error.  It was actually flagged as an error because I entered an incorrect amount that was over the current depreciable basis.   Once I corrected the error, the flag went away.  Hopefully it will e-file correctly.

Thank you.

[Frank90201]

2/14/21

After struggling with this for over a week, and after reading all of the other posters' comments, here is the likely, correct fix: (Gains and losses of business assets are normally listed on Form 4797. The only way I found to get this loss onto Form 4797 is below. Overriding may show the loss on your return, but without a lot of overriding, won't properly show it on Form 4797.)

In step-by-step, go to the page for the specific rental property, i.e., 1234 Maple Street. The upper half of the screen is for income for that rental property, the bottom half for expenses. The very last item on the page is Dispose of Rental Property Assets. Enter Edit.

This will take you to a page listing all of the assets in TT for that specific property. I.e., building, carpet, HVAC and whatever you previously called your amortizable loan fees. Click Edit by your loan fees.

Enter "Sold" on the next screen.

Next screen, enter the date the loan was paid off (sold). Leave the sales price blank or enter Zero. Enter Continue. That should take you to a page that shows your "loss" as a negative number, for the remaining unamortized loan fees. TT does not propagate that loss anywhere unless you take the following steps!

Switch to Forms.

Left hand column, go to the Asset Entry Worksheet for loan fees for that specific property.

On the Asset Entry Worksheet for the loan fees that you want to write-off, go to page 2, under Disposition. About the 4th line down it asks for the Property Type. From the drop down menu, choose Trade or Business. The loss should immediately appear and propagate.

You are done.

This will propagate the loss to Form 4797, which will in turn propagate the loss to 1065, page 4, line 10.

Disclaimer: I observed the apparent proper propagation and have not researched it any farther so YMMV. It's a shame this software costs so much and it's still a Beta version relying on users to find the errors.

[Echo2It]

Hmm, I'm not sure if we're using the same forms.  The asset entry worksheet for me is 4562.

Overriding seems to work, but the override doesn't get propagated to the State form, which is California for me.  I think I know how to fix that in the state form, but don't know if it will show correctly in the final filing forms. 

Since CA has not been finalized yet, I can't print the form out to view to see if it's correct.  We're coming on to the returns being due in 3 weeks, so this is getting a bit irritating.

[Frank90201]

Echo-

Sorry, I can only say what is working for me. I should have clarified that Form 8525 is for pass through entities (i.e., parterships and LLCs).

On the Fed side, under Form 8525 (in Forms), it lists each of my subcategories of depreciation and amortization. Going to this specific amortization worksheet, I made the changes described above. I will add that I had to enter the sales price as $0.

As you are also in CA, I'll add what I did to get it to properly propagate in CA. And yes, it's really annoying that we are three weeks away and can't finalize CA.

For CA, still in the Forms section, scroll down the left column of forms to CA form 8525 for the specific property, and then down through the assets for that property to the loan fee asset for that property. Click on that form. On the 8525 worksheet for the specific loan asset, go about 1/3 of the way down the page to Dispositions. Enter: Date of Disposition, Date of Acquisition, sales price of $0, Propery Type: Trade or Business (drop down). That did propagate to the CA forms.

(Although we can't print CA yet, we can view the propagation by looking at the individual forms in the Form view. For example, if a pass through entity, look on the CA K1 and you should see the loss reported.)

[MyNameHere]

I have tried everything suggested in this thread and other threads and I cannot get it to work. The Property Type value is not affecting anything for me. Here's the odd part... if I force "Asset Sales Price" to "$0" (instead of being blank) everything works properly (I see credit back for the unamortized fee amount taken into consideration). But if I do that TurboTax flags Asset Sales Price as being in error. It say "Dispositions of intangibles that are not Sec 1245 property cannot be entered on the Asset Entry Worksheet". The only way around that is to blank that field, but then the unamortized balance goes away.  This all seems closely related to what others are seeing. It seems like setting that Property Type to "Trade or Business" might have done the trick before (bypassing the validation around 1245 property) but its not working as of today (3/12/21).  I called customer support but they had no suggestions. Has anyone worked around this some how? I'm left hoping for a software update that will fix things it seems otherwise. I have attempted overrides in several places to manually enter the unamortized amount but so far nothing has worked.

[Carl]

For starters, when you do an over ride in the TurboTax program, two things happen.

1) You can not e-file the return. You have to print, sign and mail it to the IRS. Same will hold true for the state return also, if you are required to file a state return.

2) You automatically cancel the TurboTax 100% accuracy guarantee.

Now, here's how to do it correctly on a loan payoff (not on a sale or refinance of the property) assuming that it was initially entered correctly in the assets/depreciation section of the SCH E.

In the Assets/Depreciation section elect to EDIT this item.

I expect that "Intangibles/Other Property" is already selected by default. Click Continue.

I expect that "Amortizable Intangibles" is selected by default. Click Continue.

On the "Tell us about this rental asset" screen, leave everything as is and click continue.

On the "Tell us more about this asset" screen, leave alone any selections already made, but make one additional selection and but a checkmark in the box next to "This item was sold, retired, stolen, destroyed, etc. etc. etc." and then click Continue.

On the "Select a code section" screen I'm expecting that 163: Loan Fees is already selected. Click continue.

On the Recovery Period screen I'm expecting that to be the length of the loan. Usually 30 years or 15 years. Leave it as it is and click Continue.

For the MACRS convention, leave it as is and don't change anything. Click Continue.

Now you see the amount of amortization taken in prior years. Leave it alone and click Continue.

On the "Special Handling Required?" screen, click YES. That is correct. I said click YES.

On the "Depreciation Deduction Amount" screen, select the option to "Transfer these fees for me to other expenses", then click Continue.

You're now back to the "Your Property Assets" screen.

If you want to check, then click DONE to be returned to the rental property summary screen. Then you can work through the expenses section until you get to the "VERY" "LAST" screen of that section, which is called "Any Miscellaneous Expenses?"  On that screen you will see your points entered and labeled as "Unrealized Refinancing Fees Points" or something similar to that.

[MikeyVan1980]

Hello,

Do you have to recapture the amortization of points you have taken over the course of the  years in the year you sell? 

[Carl]

Point are amortized (not capitalized) and deducted (not depreciated) over the life of the loan.

In the year you sell, all remaining points to be deducted are fully deductible. Just work it through, select the option for "I stopped using this asset in 2020" and on the Special Handling Required screen select NO. You should *not* be asked for a sales price. If you are asked for a sales price, then go back a screen and select YES on the Special Handling Required screen. Then select the option to have the program transfer the remaining fees to be deducted, to Miscellaneous Expenses in the Rental Expenses section.

If you are not presented the option to transfer the remaining fees to Miscellaneous Expenses, then you entered the points incorrectly as a depreciated asset, when you should have entered it as an amortized asset. Easy to fix if you need help with that.