All Things Tax

All Things Tax

Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.

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Trusted Pioneer
Posts: 8
Registered: ‎02-02-2014

Rental Property Refinance Closing Costs

In 2017 I refinanced a rental property in GA to achieve better terms (e.g., interest rate, term, payment).  A total of $3,831.19 in closing costs were incurred in the process and we received $500.00 from the lender at closing.  Closing cost details follow:

 

Loan Costs:

Flood Certification = $9.00

Tax Service = $75.00

Title-Closing Protection Letter = $30.00

Title-Lender's Title Insurance = $360.00

Title-Settlement Fee = $550.00

VA Funding Fee = $531.02

--------------------

Total Loan Costs = $1,555.02

 

Other Costs:

Recording Fees = $52.00

State Tax/Stamps = $321.00

Prepaid Interest = $45.33

Prepaid Property Taxes = $1,842.04

Homeowner's Insurance = $290.40

Property Taxes = $292.40

Adjustment = -$364.00

--------------------

Total Other Costs = $2,479.17

 

Closing Costs = $4,034.19

Lender Credits = -$203.00

 

Total Closing Costs = $3,831.19

 

I have searched this forum as well as online via the IRS Web site and several Google searches but so far cannot locate information regarding how to handle these expenses within the H&R Block software.

 

Thank you.

Associate (Pioneer)
Posts: 253
Registered: ‎01-08-2018

Re: Rental Property Refinance Closing Costs

Hello dsfcom,

 

According to the tax rules, for this refinance on the rental, the total loan costs, the recording fees, and the state tax/stamps that you've listed are to be added to the cost basis of the rental property when the rental is sold. In other words, these such costs are not deducted right away on the tax return as rental expenses. Instead, they are added to the cost basis when the rental property is sold. When the rental property is sold, it gets reported on Form 4797 where the sale price, accumulated depreciation, and the cost basis that includes these such costs are reported.

 

The rest of the costs, such as property taxes, prepaid property taxes, homeowner's insurance, and the interest, are deducted as rental expenses on Schedule E of the tax return.

 

Regards,

 

Lawrence

Tax Research Specialist

Pioneer
Posts: 1
Registered: ‎04-12-2018

Re: Rental Property Refinance Closing Costs

Everything I have read on other Tax websites indicate you can claim refinance costs/fees associated with refinancing rental property.  It just indicates that you have to divide it up over the life of the loan on the property.

Associate (Pioneer)
Posts: 253
Registered: ‎01-08-2018

Re: Rental Property Refinance Closing Costs

Hello Scarter,

 

There are specific refinance costs/fees associated with refinancing the rental property that can be amortized or divided up as an expense over the life of the loan on the rental property. The items that the original poster has mentioned above can't be claimed over the life of the loan and they have to be added to the basis of the rental property when that rental property is sold. The items that can be amortized over the life of the loan are: loan origination fee, loan discount, mortgage insurance fee, and assumption fee.

 

Regards,

 

Lawrence
Tax Research Specialist

Member
Posts: 2
Registered: ‎04-15-2018

Re: Rental Property Refinance Closing Costs

Thanks.

 

Where do I enter the cost in the HR Block software?

Highlighted
Associate (Pioneer)
Posts: 253
Registered: ‎01-08-2018

Re: Rental Property Refinance Closing Costs

Hello Wenti,

 

If you are referring to the reporting of the amortization on certain refinance costs over the life of the loan, then this information is entered in the depreciation screens of the rental section in the tax program.

 

If you are referring to other costs, such as property taxes, prepaid property taxes and mortgage interest, then these are entered on a separate rental expense screen that is only for property taxes and mortgage interest. The other cost, such as homeowner's insurance, is entered directly on the rental expense screen that should have a box to enter homeowner's insurance.

 

Regards,

 

Lawrence
Tax Research Specialist

Member
Posts: 2
Registered: ‎04-15-2018

Re: Rental Property Refinance Closing Costs

Thank you very much. I did enter the cost under depreciation and it won't give me choice of loan term, only drop box to choose, and also use 150% decline method amortize not straight.  

Associate (Pioneer)
Posts: 253
Registered: ‎01-08-2018

Re: Rental Property Refinance Closing Costs

Hello Wenti,

 

If you are using the H&R Block desktop/downloadable software, on the rental depreciation screen where you enter the [Description], [Date placed in service], and selected "other property not listed" in the [Property type] drop-down box, look for and click the checkbox for "special rules apply to property." Then, click the [Next] button few times and stop on a screen called "Depreciation Years." On this "Depreciation Years" screen, look for the [Number of Years] box and enter the number for the life of the loan. Click the [Next] button and you will be on the screen to enter the refinance cost that will be amortized. Click [Next] again and answer (No) for "Listed Property." Click [Next] and answer (No) for Section 179 Deduction. Then, click the [Next] button one more time and you should see a 2017 Depreciation Summary screen that will say "straight line" for "Depreciation method used" and you should see "Years left to depreciate" to reflect the life of the loan.

 

If you are using the H&R Block online tax program, on the "What’s your property’s recovery period?" screen, select the #-year option, such as 15-year, 20-year, 27.5-year, etc., that is closest to the number of years that is on the life of the refinanced loan. Click [Next] few times and you should see an option to amortize the refinance cost via the straight-line method.

 

Regards,

 

Lawrence
Tax Research Specialist