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Question

How to write off old closing costs after a refi for rental property?

Forum|Forum|5 years ago
January 30, 2021
6 replies
0 views

I have a rental property and was amortizing the closing costs from the original home purchase. Now I have refinanced the property and I am going to amortize the new closing costs associated with the refi. However, how do I take the expense in Turbo Tax for original house purchase closing costs associated with the old loan?

TurboTax Business Windows

PattiF

To remove and list prior amortization as an expense.

Go to Your Property Assets page- Along with your rental, you should see your original refinancing fees and the depreciation amount.

Select Edit. Continue through page descriptions of prior fees. Check box, the item was sold, retired or disposed of and the date of your new fees as the date sold.
Continue to Confirm your Prior Amortization page.
Select Yes on the Special Handling Required page, because the last option is true.
Continue to next page and select radio button Transfer these fees for me to Other Expenses. View Sch. E (page 1) in forms mode to verify remaining depreciation and transfer to Other Expenses.

End result: Current depreciation amount for old loan. Remaining unamortized balance to be transferred to other expense line. Your old fees may still show on the asset page if you still have some depreciation for the current year, but it will not be listed there in the next year

Add your New Loan Fees as a new asset. On the Your Property Assets page, click Add an Asset link to enter data for new loan fees.

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zmminvestAuthor

Pattif12:

So I am using TurboTax Business 2020 since I am filing for an LLC. I don't see the same screen and options you describe.

What I have done is went to the Federal Taxes>Rental Real Estate>clicked edit on the property in question>clicked "Update" on the "Dispose of Rental Real Estate Property" section at the bottom. Clicked "Edit" on the asset to dispose of. Now it gave me choices of (1) sold (2) given away or (3) abandoned. I chose abandoned...I mean I would have preferred a "retired" option but without that option I thought abandoned was the better choice of the three options. It asks for the date of abandonment and then proceeds to calculate a partial year's amort. Which is fine. But what it doesn't do is take the remaining asset value to other expense on my income statement so I manually did that through the "General Expense" section and entered a line for the write off of the closing costs.

Does this sound OK?

robthomas1212

Hello, I have the same question. I do not see the special treatment option in TT Business 2021. Please advise.

Carl11_2

Employee

How your previously amortizing closing costs are treated, depends on the source of the refi loan.

If you refi'd through the same lender, then whatever you have left to amortize on the old loan, gets added to the amortized costs of the new loan and that new total is amortized over the life of the loan. (Or is it 15 years? I'm honestly not sure on the time frame.)

If you refi-d through a new lender, then the remaining costs to be amortized on the old loan are fully deductible in the year of the refi.

zmminvestAuthor

Carl:

So I did two refis. One with same lender, and one with new lender.

For the one with the same lender I'm not sure how to "move" the remaining asset value of the old closing costs to the new one without messing with the old asset , which turbo tax doesn't seem to want me to do. So I guess I will just lave the old closing costs amortizing on its original schedule.. It's only < 2 years difference.

Do you know where in the IRS code does it state you have to carry the original closing costs if you refi with the same lender for a rental property?

Thanks!

Carl11_2

Employee

See IRS Publication 936 at https://www.irs.gov/pub/irs-pdf/p936.pdf

Page 8 first column

Mortgage ending early.If you spread your deduction for points over the life of the mortgage, you can deduct any remaining balance in the year the mortgage ends. However, if you re-finance the mortgage with the same lender, you can't deduct any remaining balance of spread points. Instead, deduct the remaining balance over the term of the new loan.A mortgage may end early due to a prepayment, refinancing, foreclosure, or similar event.

sc07734

I also confirm that Turbo Tax, at this time (April 2022) in Turbo Tax Premier, does not properly expense the remaining points from the old loan when refinancing with a new loan. Here are my steps.

I edited the mortgage points item in my Schedule E Assets section:

- marked them as Sold / Retired etc. In further questions:

- Do they require Special Handling? No.

- Date or retirement / sale: closing date of new refi loan.

- Sale price: LEAVE BLANK!!! . Sale price portion used for business: $0.

--> Sale price must be blank. If I set it to 0 then Turbo Tax complains .. something about form 179 and that intangibles must have the sale price blank..

- Finally I go to Miscellaneous section in Expenses and add a new line item as "Deductable remaining old loan costs".

Note that Turbo Tax amortizes a small portion of the old loan in the Assets section as above and prorates to the months in the year before the month of refi loan. This has to be taken into the account when calculating the remaining portion of the loan to be expensed in Miscellaneous.

absoloodle37

This situation was corrected for me in TurboTax as of 17 April 2022. You Do have to go in and edit the previous refinance entry to indicate that the 'asset' was sold and provide the date and answer "no" special handling question, etc. The expense corresponding to the remaining balance that hadn't been depreciated was automatically generated as an entry in the miscellaneous expenses section for that property as "Unrealized Refinancing Fees..." Furthermore, the amount for this miscellaneous expense is calculated in accordance with the note you made below about TurboTax still amortizing the prorated amount corresponding to the month of the year that the loan was refinanced in. So it all checked out for me.

It's as if they read your Comment and addressed each issue exactly as you described. They still need to fix the fact that you have to manually go into the entry for the refinance in the Asset section and indicate that it was sold (even though TurboTax had already asked if this property had been refinanced this year). But at least I'm glad they do the math for you and create the entry in the Miscellaneous expenses section for you.

Carl11_2

Employee

Here's two boilerplates. One for how to enter points/refi fees so they are amortized/deducted. The other is how to deal with the deduction of remaining points on a sale or refi, assuming they were entered correctly into the program from the start.

ENTERING POINTS

here's how to enter the points in the Assets/Depreciation section.. (does not apply to entering the property itself, or any other property assets.)
- Select the Add and Asset button. (go straight to the asset summary if presented that option)
- Select Intangibles/Other Property, then continue.
- Select Amortizable Intangibles, then continue.
- Describe it as something like "2021 Financing Fees". Then enter the amount, and the closing date of the loan. Then continue.
- Select "purchased new", then "100% business use", enter the closing date of the loan (again), then continue.
- Code section is 163:Loan Fees, then continue.
- Useful Life in Years is the length of the loan, then continue.
- You can "show details" if you like. Then continue, and that does it

DEDUCT FINANCING FEES OF OLD LOAN WHEN REFINANCING OR SELLING

In the Assets/Depreciation section for that rental property, elect to edit/update the entry for your points.

- On the "Review Information" screen click Continue.

- On the "Did you stop using this asset 2021?" screen, click YES.

- On the "Disposition Information" screen, in the disposition date box enter the date you closed on the new loan. Then click Continue.

- On the "Special Handling Required?" screen, click YES.

- On the "Depreciation Deduction Amount" screen, select Transfer These Fees For Me To Other Expenses. Then click Continue.

You'll see the remaining fees of the old loan to be deducted in the Rental Expenses section, very last screen of that section. The entry will start with "Unrealized Refinancing Fees...."

Steph388

What if I don't refi and just pay off the loan?

KrisD15

If you pay off (early) a loan where points were being amortized over the life of the loan, you may claim all the remaining points in the tax year of the final payment.

Select YES on the screen (in the entry of the 1098) asking about point and report that you are spreading then over the life of the loan.

On the next screen enter the remaining points and be sure to select that the loan was paid off in 2022.

The main screen will show the interest paid, in my example 150,000 PLUS the points, in my example 3,333.

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Steph388

I paid off the loan and did not refi. Can I continue to amortize the remaining points & fees?

Steph388

I paid off the loan and did not refi. Can I continue to amortize the remaining fees & points

PattiF

You would deduct all of the remaining fees and points in the year that the loan was paid off.

Go back into the program and go to the federal section of the program.

Select Deductions & Credits
Select Mortgage Interest and Refinancing (Form 1098)
Select Edit to the right of the applicable loan.
Continue through the screens until you see Let's get the details from your Home loan.
On this page, type in 0 under box 2. Do not enter any decimals as this may generate the error.
Continue through the screens until you see Was this loan paid off or refinanced with a different lender in 2022?
Select Yes on this screen.