Re-finance Loan Charges a Rental Expense?

Financing, Hard Money Lenders, Private Money
1

This is a question for McWagner or anyone else who has re-financed a rental property.

Is almost everything on the closing loan settlement statement added to basis or is it expensed? Those are some thousands in loan origination fees, etc.

Furnishedowner

2

It’s really up to you and your accountant. I add everything I can to my basis and write off next to none. I do this because I need to show tax return income in order to qualify for financing. I wrote off everything I could in 2009 and it’s biting me in the butt write now…

3

You could have ask for an advice from a realtor agent or real estate lawyer before you took out such kind of loan.

4

Thanks for the replies, cjameson and Leonard Vice.

This has been the year where I have refinanced through the existing lenders to get lower interest rates on rental property. The payments have dropped, I have gotten rid of PMI and the principal payments remain about the same. Also now the properties are more marketable with lower interest loans. A good deal all around.

It doesn’t matter much to me if the loan fees are added to basis or expensed. Usually I expense everything possible to get this year’s tax bite the lowest possible. Let tomorrow take care of itself.

Furnishedowner

5

origination fees are broken out and amortized over the life of the loan. if the loan is refinanced, any remaining un-amortized fees are expensed that year.

interim mortgage interest is expensed. this will usually be included on your 1098.

escrows are broken out. this is your money held in somebody else’s bank

any amounts paid out directly for property insurance are expensed. This is NOT title insurance.

any amounts paid out directly to taxing jurisdictions are expensed.

anything credited to you from the seller for taxes through the closing date are broken out and become a liability to you if you are keeping books. (the seller paid taxes to you, and eventually you will have to pay the taxes to the government. they are a liability to you until paid). Quick example: you get credit from seller at closing for 3 months taxes $500. In Dec you pay $2k. $500 of this removes your liability, the other $1500 you get to expense for “your” taxes for the last 9 months.

any other credits from the seller reduce your basis (seller paid closing expenses).

everything else is basis. junk fees, title policy, flood certs, couriers, etc.

6

McWagner,
Thanks a bunch. You really know your stuff.
We have great experts on this site, folks.

Furnishedowner