Deduct refi fees on sale of rental


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A

Arthur Kamlet

miami_librarian said:
Can one deduct refinance fees when selling a rental?
Add refinance points on the rental to the basis.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
I

Ivan Erwin

Add refinance points on the rental to the basis.
I'm struggling with this issue and doing a lot of
calculations at the present time. (I am definitely not a tax
professional!)

IRS Pub. 527 Residential Rental Property (www.irs.gov) says
on page 11:

Some settlement fees and closing costs you cannot include in
your basis in the property are:
1. Fire insurance premiums,
2. Rent or other charges relating to occupancy of the
property before closing, and
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.

3.a. Seems to be pretty clear about not adding points to the
basis. Pages 3 & 4 explain how to handle points. Since the
OP did not deduct the points for the year of the refinancing
(it may not have been possible to do so,) the OP should have
been amortizing the points from the refinance loan over the
life of the loan (as extra interest not reported on Form
1098?) At the time of sale, the remaining points would be
deducted. (Again, I assume as extra interest for the year of
sale.)

I would appreciate any further clarification from the tax
pros.

Ivan
 
D

David Woods, EA, ChFC, CLU

Add refinance points on the rental to the basis.
I disagree. If these were unamortized refinance fees, they
are deducted when the new loan is paid off, which is when
the property is sold.
 
A

Arthur Kamlet

I disagree. If these were unamortized refinance fees, they
are deducted when the new loan is paid off, which is when
the property is sold.
Yup. I think I was thinking of points on original purchase.
Thanks for the catch.

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
 
H

Harlan Lunsford

I disagree. If these were unamortized refinance fees, they
are deducted when the new loan is paid off, which is when
the property is sold.
concur.

ChEAr$,
Harlan Lunsford, EA n lA
 
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I

Ivan Erwin

I disagree. If these were unamortized refinance fees, they
are deducted when the new loan is paid off, which is when
the property is sold.
How far back in time might one be able to go back to now
claim unclaimed & unamortized points?

(I assume the answer would be similar for a rental except
that more fees can be claimed as points for a rental
property)

Facts:
Personal residence - only discussing "Loan Origination Fees"
and "Loan Discount Fees" that are a percentage of the loan
amount A previous loan was refinanced with a new lender on
05/06/1999 - Points were $1,760

The loan was refinanced ("streamlined") with the same lender
on 03/26/1999 - Points were $1,612

The loan was once again refinanced ("streamlined") with the
same lender on 02/26/2003 - Points were $1,583

None of these points were ever claimed. The initial points
on the 05/06/1999 loan could only have been amortized by
IRS regs since all of the fees were financed and no cash was
brought to closing.

The two refinancings in 1999 & 2003 with the same lender
mean by IRS regulations that the remaining undeducted points
could not have been claimed at the time of refinancing, but
could only be carried forward and amortized along with the
points on the new loan(s.)

Senario one: File an amended return for 2003 and begin
amortizing the entire amount of $4,955 over the 15 year term
of the last refinancing.

Senario two (less trouble for the tax payer): 2004 return
not yet filed. Begin amortizing the entire amount over the
14 remaining years.

Senario three (less to deduct): Start with the 1996
refinancing and caclulated what could have been amortized.
(Sort'a like depreciation which must be recaptured whether
claimed or not?) Carry the amount that could not yet have
been amortized forward to the next refinancing in 1999.
Repeat the cacluation process of what could (and could not)
have been amortized up to the 2003 refinancing. Begin
amortizing the entire amount not yet amortizable over the 15
years of the loan (Amended 2003 return.)

Senario four: The points not amortized and deducted in the
past are lost (I hope not.) File an amended return for
2003. Calculate the points from only the 1999 re-fi that
could not yet have been amortized and begin amortizing along
with the $1,583 from the 2003 re-fi over 15 years.

Anything I haven't thought of?

TIA, Ivan
 

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