A friend mentioned there’s an IRS limit on how much I can deduct in refinancing expenses, does anyone know? Taxwise, is it more advantageous for me to refinance all 3 of my properties in one year or to divide them up between 2005 and 2006? I’m in the 28% tax bracket without an LLC. Its almost 2006, I can wait a couple of months if necessary. I’m leaning toward 2 in 2005 and 1 in 2006. What do you think? Thanks
As far as points go, when you are refinancing you have to deduct the points over the term of the loan…that is, if you have $2,000 in points on a 20 year refi, you can only deduct $100 a year in points. If you sell or refi again, you can claim the remainining balance of undecalred points. For example (using the numbers above), if after declaring $100 a year in points you sell after five years (you’ve declared $500 so far), you can claim the remaining $1,500 in undeclared points.
Certain closing costs are adjustments to basis and recovered through depreciation.
Points paid that are not allowed as an interest expense, are amortized over the life of the mortgage loan.
However, if you roll all your closing costs and loan points into your loan amount, you have no money out of pocket, a slightly higher loan balance, BUT all of your mortgage interest can be deducted in the year paid.
Thanks for the replies, rolling closing costs into the loan seems most beneficial. Are you aware of an IRS cap per year on deductions for financing and refinancing relative to income? Most appreciate your input… 8)
No caps relative to income. There are caps on deductability of mortgage interest from a cash out refinance, but no IRS limits relative to income.
Thanks, I’ll visit tax codes for mortgage interest cap information :