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Qtax09
Employee
September 19, 2024
Solved

Pre payment penalty on commercial loan for a rental property

  • September 19, 2024
  • 3 replies
  • 0 views

I converted my home into a rental property. I took out a nonconforming commercial loan on it to buy another home in another state.

I have a 3 year prepayment penalty.  Is that penalty deductible if I sell the rental property  sooner?

    Best answer by Anonymous_
    No text available
    No text available

    3 replies

    A
    Anonymous_
    Employee
    September 19, 2024
    No text available
    Q
    Qtax09Author
    Employee
    September 19, 2024

    Thank you.  But still do not understand how a rental property is treated with the loan prepay penalty.

    A
    Anonymous_
    Employee
    September 19, 2024
    No text available
      A
      AmeliesUncle
      September 20, 2024

      Could you clarify your situation?

       

      You said you took out another loan, but then you are asking about a prepayment penalty (which seems to be about PAYING a loan, rather than receiving a new loan).  Could you expand on that; taking out a loan and prepaying it seem to be opposites.

       

      Is the other home in the other state a rental?  Personal?  Something else?

       

      What EXACTLY is the prepayment penalty for?  You need to look at the EXACT verbiage in your contract.

        Q
        Qtax09Author
        Employee
        September 29, 2024

        Thank you.

        I put a new mortgage on my home. It was a commercial loan with a prepayment penalty of 3 yrs.

        I moved out immediately and converted it to a rental.

        I then used the money to buy a home in another state where I live now.

         

        I have decided to sell the rental property...and will incur a penalty for selling before the 3 years is up.

        Can I deduct the penalty from my capital gains this year?

        A
        AmeliesUncle
        September 29, 2024

        No.  If the loan was used to purchase your personal residence, the loan does not affect any rental deductions or rental capital gain.  

          Q
          Qtax09Author
          Employee
          September 22, 2024

          I recently got a commercial (non conforming) loan on my rental property with a three year pre payment penalty.

          If I sell the property before 3 years, will the penalty be deductable on my taxes?

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