How would I report up-front costs I paid on a rental property refinance that was initiated at the end of year 1 and where the refinance was completed and funded in the subsequent year?

[DoGood]

Hi, 

I refinanced my rental properties at the end of 2021. I paid for credit report fees and appraisal fees upfront in December of 2021. The refinances did not complete and fund until late January of 2022.  So, the question I have is how and when should I report the fees I paid upfront at the start of the refinance activities in Dec 2021? Should I just hold those expenses and combine it with the refinance activity that closed in January 2022?

[Carl]

YOu will not report anything concerning your refi on your 2021 tax return. Absolutely nothing. It all gets reported on your 2022 tax return.

 - Cost associated with acquisition of the property are added to the cost basis of the property and depreciated over time. Since this was a refi of a property you already own, you will not have any of these costs that are deductible or depreciated.

- Cost associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. These are the only costs you will have that are actually deductible over the life of the loan.

Note some things that can raise questions if claimed. But if it's legit, it's really not a problem for issue.

Survey fees - Amortized only if a condition of loan approval.  Not common. But not unheard of either. Generally will be listed as such on the ALTA closing statement in the section for loan charges.

Appraisal fees - Must be charged by, and paid to the bank. Otherwise, it's not a condition of loan approval and therefore is not deductible. Generally, if it's listed on your ALTA closing statement in the section for "loan charges", then you can claim the amount shown. Otherwise, it's just not deductible.

When done entering the data on your 2022 return next year, you should see an item in the assets/depreciation list for refinancing fees. If it's not there, here's how to enter it manually.

here's how to enter the points and other amortized charges/expenses incurred 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 OR SELLING

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...."