Sale of rental property - how to treat prior amortized refinance deductions

[hicksjc100]

Hello - I can't seem to find the answer to this question posted anywhere.  If I have a rental property, I know that the costs associated with a refinance can be spread out over the life of that new loan.  Turbotax guidance states:

"The costs associated with obtaining a mortgage on rental property are amortized (spread out) over the life of the loan. For example, if it cost you $3,000 to refinance your 30-year mortgage, you'd be able to deduct $100 per year for the next 30 years."

My question is this - Let's say I've been deducting $100 per year for 10 years (for a total of $1000 in deductions) but then sold the rental property in year 11.  Can the remaining $2000 of unused refinance costs finally be fully deducted in the year of sale (year 11)?

[DianeW777 · Accepted solution]

Yes, you can deduct the remaining cost of refinancing in the year of the sale.  Use the steps below to enter the remaining expenses on the rental activity for your final year.

1. Select Edit beside your property 
2. Scroll to select Add expense or asset 
3. Scroll to select the expense you need or Miscellaneous 
4. Click the checkbox > Scroll to select Continue 
5. Scroll to the expense you selected and click the Start button to enter your expense.

The sale itself should be straight forward when you are completing the rental activity for 2023.  Here are some tips to help.

TurboTax is fully capable of reporting the sale of a rental property.  Here are some tips that may be useful.

The selling price should be prorated for each asset then entered for each asset when you indicate they were sold or disposed of. You will not lose the remaining depreciation because you will use the remaining basis against the selling price to determine gain or loss. 

To figure out the selling price for each asset:

1. Take the current basis of each asset against the total combined basis of all of your assets to figure out the sales price for each one; OR 
2. Determine a fair market value for each asset against the total value of all assets to figure out the sale price for each one. 

Use the original cost of each asset listed on depreciation, add those together then divide each one by the combined total to find the percentage of the cost for each asset.  Use that percentage times the sales price and sales expenses to find the selling price/sales expenses for each asset. (Choices would also be fair market value on the date of the sale or adjusted basis on the date of the sale, which is cost less depreciation.)

Example:  Original Cost (of each asset on your depreciation schedule)

$10,000 Land                = 13.33% 

$50,000 House              = 66.67%

$15,000 Improvements  = 20%

$75,000 Total                 = 100%

Multiply each percentage times the sales price/sales expenses to arrive at each individual sales price/sales expense.

I hope this example provides clarification to enter your sale. If you have not used TurboTax, enter each asset exactly as it appears on your prior year return.

You need to dispose of the property by telling TurboTax how and when it was disposed of.  Follow the instructions below.

1. Click on Wages & Expenses
2. Scroll to Rental properties and royalties, click Edit/Add or Start/Revisit
3. Do you want to review your rental?, click Yes
4. Under Rent and Royalty Summary, click Edit
5. Click Update to the right of Assets/Depreciation.
6. Do you want to go directly to your asset summary?, click Yes and Continue
7. Click Edit to the right of each asset to be disposed of/sold
8. Go through several screens until you get to Tell Us More About This Rental Asset
9. Click on This item was sold…….   And continue to answer the questions

You might also review information here.