Closing cost deduction questions of a loan and a refinance for my vacation home rental

[Anonymous_]

For future reference, you might want to consider refinancing with a lender who will wrap the closing costs into the loan balance in the event you determine those costs (such as legal, appraisal, title fees, etc.) are not deductible in your case. The interest on the loan balance would still generally be deductible.

[wleuter]

Hi @Anonymous_ 

I have a question about "Typical rental expenses are deductible after you place the property in service."

let's say I place my vacation home in service in 2022 and rented from Jan to July in 2022, then I used it personally from Aug to Dec.

If I did a refinancing in Aug 2022, are the refinancing closing cost deductible for 2022 tax return?

Thank you!

[Anonymous_]

See https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-credits-deductions/deduct-refinancin...

If the property is not taken out of service, the costs, including interest, would have to at least be prorated.

[wleuter]

@Anonymous_ 

For this answer, I am not sure if my understanding is correct.

So for my long term rental, I can amortize the loan closing costs related to acquisition of the mortgage but I can't do the same thing for my vacation home, right?

Is it because of some limitation policy for vacation home rental? 

[Anonymous_]

Your long-term rental does not (most likely does not) have any personal use, unlike your vacation rental.

[wleuter]

@Anonymous_ 

Will this kind of amortization be recaptured when selling the property? If so, at what tax rate?

Thanks!

[Anonymous_]

No recapture for deductions (refinancing) taken over the life of the loan.

[wleuter]

Hi @Anonymous_ 

Thanks for your answer for this question!

Can you provide some links from IRS or any related document which can help me to know more details?

Thanks again!

[Anonymous_]

I'm not sure exactly what documents you want to read (or to refer to and for what purpose).

Below are a few links.

https://www.irs.gov/pub/irs-news/at-03-32.pdf

https://www.irs.gov/taxtopics/tc504

https://turbotax.intuit.com/tax-tips/home-ownership/mortgage-refinance-tax-deductions/L2fzA7hg5

[wleuter]

@Anonymous_ 

Sorry I forgot to mention the question.

Please see the screenshot below.

Can you provide some document links for that? Thank you very much!

[Anonymous_]

@wleuter 

Please refer to the links below.

What can I deduct when refinancing rental property? (intuit.com)

https://www.irs.gov/publications/p527#en_US_2022_publink1000219057

[Anonymous_]

Note that with respect to a vacation home (i.e., where there is personal use), allocations need to be made between rental and personal use and the expenses not directly related to rental use cannot result in a net loss.

[wleuter]

@Anonymous_ 

Thanks for providing links!

I want to know why vacation home can't amortize the loan closing cost related to acquisition of the loan but I did not find the corresponding content in the links.

[Anonymous_]

Section 280A limits deductions for expenses on "vacation homes".