Because this is a rental property the closing costs listed on your HUD-1--loan fees, title fees, and recording fees,etc--are capital expenses. You may amortize them over the life of the mortgage.
Turbotax will do all the work. The program will ask if you refinanced your property and then create an asset for your refinancing fees. To enter your refinancing fees, please follow these steps:
Because this is a rental property the closing costs listed on your HUD-1--loan fees, title fees, and recording fees,etc--are capital expenses. You may amortize them over the life of the mortgage.
Turbotax will do all the work. The program will ask if you refinanced your property and then create an asset for your refinancing fees. To enter your refinancing fees, please follow these steps:
Thank You, for many years I have never utilized the step by step method. This year due to a conversion from vacation home to rental + refinanced, I was totally lost. (asset worksheet refinance expenses, etc) Appreciate the clarity and the step by step method to get there. Some people did a screen shot which was totally unreadable and found your answer.
Hi, I am working on 2020 Tax, and when I follow your instruction to "Review Your [address] Rental Summary," I only see "Done With Rental Property"
I do NOT see "update"
Is there a bug in your software of year 2020
You can log into your return and go to your rental property through either the business tab or federal income- depending on your program.
I have the same issue. I thought I was going crazy expecting to have the wizard copy the refinance fees into an asset to be depreciated.
It seems to be a common bug for some of us. I also saw it posted here:
Rental Refinance Fees not added to depreciation schedule
Aha! there is a bug then. I've been going crazy because I added all the refi information and nothing was added to the assets. I went ahead and enter the refi cost as a new asset.
I encountered the same problem when filing my 2021 taxes. After entering the mortgage interest paid on my rental property, the software asked if I had refinanced the loan. I entered the requested information from my HUD-1 statement. TurboTax did not automatically create an asset to amortize the expenses. I had to do that manually. This seems to be a problem that's been outstanding for several years. Anyone entering their refinance expanses in the "refinance wizard" without manually creating an asset to amortize may be leaving money on the table.
Does the "refinance" also include getting the mortgage for a new purchase?
What type of new purchase? If you are purchasing a new house with the proceeds from the refinance, then no it does not count. In order for the mortgage interest to be tax deductible, the loan has to be used to buy, build or purchase the home in which it is secured by.
If you are taking out an original loan on a new home, then that would not be refinancing, that would be original mortgage.
Thanks. So is the fees (points, processing fees/appraisals) associated with obtaining the original mortgage for a rental property deductible (in the amortized way)?
Yes there are some settlement fees that are includible in the basis of the rental property and can be depreciated.
Settlement fees and closing costs for buying the property become additions to your basis in the property. These include abstract fees, charges for installing utility services, legal fees, recording fees, surveys, transfer taxes, title insurance, and any amounts the seller owes that you agree to pay (back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions).
Costs that are basis adjustments can be part of your yearly depreciation deduction for the rental property. Per our Expert RobertG
Thank you, @Cynthiad66 !
What about the the cost of getting the mortgage, such as discount points, lender processing fees, appraisals, credit report? Some people say they should be deducted in an amortized way for the life of the loan and some says they are not deductible. In TurboTax there is a section to deduct these cost for "refinance" but I am not sure about the original mortgage; it is kind of odd that the cost of "refinance" is deductible but not the cost of obtaining the "original mortgage".
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.
Because they are a duplication of the fees paid on an original mortgage, this provides a way to expense them similarly, but in a different process (amortization vs depreciation).
[Edited: 03/14/2022 | 7:42a PST]
How do I enter property assets for rentals? I have an asset that I have placed in service in 2016. I refinanced in 2021. Turbotax automagically imports the asset from year to year. Do I edit the existing asset entry and modify it as sold or do I leave it alone? As far as entering refinance expenses do I enter only closing costs or the entire amount of the loan? Also, if I don't modify or delete the original entry of the asset. Do I remove that asset next tax season?
No, if you didn't sell the rental property, you would not change any entries for that Rental Asset.
Instead, report a new loan as a refinance when asked about that under the Mortgage Interest section of Rental Expenses.
Closing costs for a refinance are added to the cost basis for the property. You may report this total as another asset for amortization under Rental Real Estate Assets. Choose Rental Real Estate for the type of asset, then "Amortizable Intangible" on the page titled "Tell Us a Little More." (Mortgage refinance costs are listed in the examples for this type of asset.) The Code section is 163: Loan fees, refinance costs. The amortization period would be the term of the loan (default is 15 years).
Additional Information:
Hopefully someone is still out there responding to questions.
If I purchased carpeting for rental property several years ago and recently replaced all the flooring, do I removed the Asset created for the carpeting because new flooring has been installed?
CARPET: Carpets are typically depreciated over 5 years. This applies, however, only to carpets that are tacked down. If the carpet is glued down (perhaps in a basement) then it becomes “attached” to the property and must be depreciated over 27.5 years. From Web;
Issue is as long as you are beyond the depreciated years than you don't have to recapture.
do I removed the Asset created for the carpeting because new flooring has been installed? Yes ... all assets that are disposed of need to be removed from the asset lists ... if it was simply trashed then the selling price is zero.