What Affect's the Cost Basis on Capital Gains
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?
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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.
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.
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.