Cost of refinancing

[KojoAlmighty]

Where or how can I claim the cost of refinancing a mortgage if I used the proceeds to buy an investment property or stocks that I received capital gains on?

[bosso3]

What did you refinance?

[KojoAlmighty]

A mortgage

[JohnW152]

Yes, but what mortgage did you refinance?  Your first home?  A second or third home?  A rental property?  

[KojoAlmighty]

@JohnW152 I refinanced a mortgage on a rental property.

[LeonardS]

You can only deduct closing costs for a mortgage refinance if the costs are considered mortgage interest or real estate taxes. Your closing costs are not tax-deductible if they are fees for services, like title insurance and appraisals.

[bosso3]

LeonardS is correct.

However, you may be able to add the closing costs to your basis for this asset.

I do not know the details on this, but it would not affect 2021's taxes.

[KojoAlmighty]

Thanks @LeonardS and @bosso3 for your inputs.

I thought I give you an actual scenario for a better understanding of the situation

So here's the situation.

- I refinance a 5 year fixed mortgage on a rental property. And the goal was to use the funds to finance other investments.

- because it was before the 5 years and the new interest was lower than the current, there was an interest differential charge of say $5000.

- I used the funds form the refi to buy stocks which I sold for a profit of $10,000.

- I then used the money from the stocks and the refi to purchase another rental property.

- all of this happened within the same year.

So again my question is can I claim the $5000 as part of capital expenses for the stocks or can I claim it as part of the expenses for the new rental property?

Thanks for your help.

[bosso3 · Accepted solution]

Such a tangled web you weave. 

Suggestion for next post:  Having this info at the beginning would have saved a lot of time and speculation.

I'm not expert in this, but as I see it,

1)  The $5000 refinance fee is only applicable to be added to the basis of the rental that you refinanced. 

2)  How you got the money to buy the other rental is not relevant.

3)  It sounds like you have a $10k short term capital gain to report.

4)  The basis of your new rental property will be the costs you paid to acquire it.

I hope this helps.

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