Skip to content
Tax, SDIRAs & Cost Segregation

User Stats

169
Posts
58
Votes
Ted Klein
  • Investor
  • Redmond, WA
58
Votes |
169
Posts

What Affect's the Cost Basis on Capital Gains

Ted Klein
  • Investor
  • Redmond, WA
Posted Jan 22 2022, 16:44

I am looking for clarification on whether the closing costs on multiple refinances of a rental property might affect the Capital Gains. Is it only on the original purchase or are subsequent refinances included in the cost basis of the property?

User Stats

3,273
Posts
2,845
Votes
Ashish Acharya
Pro Member
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
2,845
Votes |
3,273
Posts
Ashish Acharya
Pro Member
#2 Tax, SDIRAs & Cost Segregation Contributor
  • CPA, CFP®, PFS
  • Florida
Replied Jan 22 2022, 17:29
Originally posted by @Ted Klein:

I am looking for clarification on whether the closing costs on multiple refinances of a rental property might affect the Capital Gains. Is it only on the original purchase or are subsequent refinances included in the cost basis of the property?

Yes, it matters, but you get the deduct the original loan cost when you refi to the new one. I have seen people lose 15k in basis when they refi. 

User Stats

169
Posts
58
Votes
Ted Klein
  • Investor
  • Redmond, WA
58
Votes |
169
Posts
Ted Klein
  • Investor
  • Redmond, WA
Replied Jan 22 2022, 23:52
Originally posted by @Ashish Acharya:

Yes, it matters, but you get the deduct the original loan cost when you refi to the new one. I have seen people lose 15k in basis when they refi. 

So when you say "I have seen people lose 15k in basis when they refi", is that because they deducted the original loan already and a refi closing cost then becomes like a penalty on the basis? Please explain.

BiggerPockets logo
BiggerPockets
|
Sponsored
Find an investor-friendly agent in your market TODAY Get matched with our network of trusted, local, investor friendly agents in under 2 minutes

User Stats

1,407
Posts
752
Votes
Lance Lvovsky
Pro Member
  • Accountant
  • Fort Lauderdale, FL
752
Votes |
1,407
Posts
Lance Lvovsky
Pro Member
  • Accountant
  • Fort Lauderdale, FL
Replied Jan 23 2022, 13:44

The loan amount is not part of cost basis.

Yes, refinances to increase cost basis. One must carefully analyze the closing statement to properly account for this. For example, title charges, transfer taxes (if applicable), government recording charges. Loan finance charges are capitalized and amortized, and in turn, would reduce any gain as well.