topic Lender fees on a Rental purchase added to basis or Amortized as Intangibles?? in Investors & landlords

Lender fees on a Rental purchase added to basis or Amortized as Intangibles??

Vic_R — Tue, 31 Mar 2020 20:00:46 GMT

Per Pub 527 (Under cost basis, Chapter 2, page 7) and Pub 946 under settlement costs, that

"The following are settlement fees and closing costs you can’t include in your basis in the property."

"3. Charges connected with getting or refinancing a loan, such as:

a. Points (discount points, loan origination fees),
b. Mortgage insurance premiums,
c. Loan assumption fees,
d. Cost of a credit report, and
e. Fees for an appraisal required by a lender.

HOWEVER, I'm reading what appears to be a contradiction, also in Pub 527 and several articles: Pub 527 also says "Expenses paid to obtain a mortgage. Certain expenses you pay to obtain a mortgage on your rental property can’t be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property." (Ref Chapter 1, Rental Expenses, pg 3).

If that wasn't confusing enough, when I google this I find articles like this: https://homeguides.sfgate.com/can-amortize-rental-property-77587.html

"When you first buy a rental property, your loan and acquisition costs get added into the cost basis and cannot be amortized, although they do get added to your basis for depreciation. However, when you refinance your rental property's loan, the IRS treats that as a new expenditure, just like an improvement..."

Which is it: Who do I believe??

Re: Lender fees on a Rental purchase added to basis or Amortized as Intangibles??

ColeenD3 — Tue, 31 Mar 2020 20:25:22 GMT

Both are in fact, saying the same thing in Pub 527. I have emphasized the terms in each passage.

Expenses paid to obtain a mortgage. Certain expenses you pay to obtain a mortgage on your rental property can’t be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses that are part of your basis in the property.

Settlement fees and other costs. The following settlement fees and closing costs for buying the property are part of your basis in the property. • Abstract fees. • Charges for installing utility services. • Legal fees. • Recording fees. • Surveys. • Transfer taxes. • Title insurance. • Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

@Vic_R

Re: Lender fees on a Rental purchase added to basis or Amortized as Intangibles??

Vic_R — Tue, 31 Mar 2020 22:21:39 GMT

@ColeenD3

Hi Coleen, I see the difference in Pub 527 language is "mortgage" commissions.

I've done this before and amortized the "Lender fees" over the life of the loan and that's what I'm doing again, and that actually makes sense to me (which is not always the case when it comes to tax law).

So the online article I referenced is simply incorrect; agree?

Re: Lender fees on a Rental purchase added to basis or Amortized as Intangibles??

ColeenD3 — Tue, 31 Mar 2020 22:25:18 GMT

I didn't even look. I go straight to the source. Everything else is just interpretation.