Bridge Loan Points : Unamortized Part Tax Treatment

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Bridge Loan Points : Unamortized Part Tax Treatment

Zhenyang Jin
Member since 2018 · 72 posts · 25 votes

Last April, I used one bridge loan to purchase one apartment. The loan costs are: $11K ( Processing fee: 1K + Points $10K). The loan term is 18 months.

In Nov 2025 (7 months later), I refinanced with another lender using tradditional commercial loan. 

Question: Instead of amortizing these loan cost, can I fully deduct this $11K loan cost because the original loan is paid off? Can I deduct the cost as interrest?

Regards, Clark

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Michael PlaksPro Member
Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
7mo
Quote from @Zhenyang Jin:

Last April, I used one bridge loan to purchase one apartment. The loan costs are: $11K ( Processing fee: 1K + Points $10K). The loan term is 18 months.

In Nov 2025 (7 months later), I refinanced with another lender using tradditional commercial loan. 

Question: Instead of amortizing these loan cost, can I fully deduct this $11K loan cost because the original loan is paid off? Can I deduct the cost as interrest?You amortize it 

Normally you would amortize it and then deduct the remaining unamortized costs at refinancing. Since it happened in the same year, it's more in the grey area, and the treatment will depend on your CPA. But deducting it as interest is incorrect either way.

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  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    7mo
    Quote from @Zhenyang Jin:

    Last April, I used one bridge loan to purchase one apartment. The loan costs are: $11K ( Processing fee: 1K + Points $10K). The loan term is 18 months.

    In Nov 2025 (7 months later), I refinanced with another lender using tradditional commercial loan. 

    Question: Instead of amortizing these loan cost, can I fully deduct this $11K loan cost because the original loan is paid off? Can I deduct the cost as interrest?You amortize it 

    Normally you would amortize it and then deduct the remaining unamortized costs at refinancing. Since it happened in the same year, it's more in the grey area, and the treatment will depend on your CPA. But deducting it as interest is incorrect either way.

    2Reply
    • Zhenyang Jin
      OP
      Member since 2018 · 72 posts · 25 votes
      7mo

      @Michael Plaks @Aaron Zimmerman

      Thanks for help. This is what I found from FASB Interest—Imputation of Interest
      (Subtopic 835-30)

      "
      835-30-45-3 Amortization of discount or premium shall be reported as interest
      expense in the case of liabilities or as interest income in the case of assets.
      Amortization of debt issuance costs also shall be reported as interest
      expense "

      May I know what category of expense account you suggest to deduct as? 

      Before deduction happens, the loan costs on closing settlement is treated as "Other asset" for amortization. Is my understanding correct?

      Regards, Clark

      0Reply
  • Aaron ZimmermanBusiness Member
    Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
    7mo
    Agreed with Michael. I’d look to capitalize both and then remove the bridge loan costs upon refinance.
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  • Christopher Tile
    Accountant · Long Island, NY · Member since 2021 · 185 posts · 148 votes
    7mo

    Agree with both @Michael Plaks and @Aaron Zimmerman. Remove original loan costs upon refinance. 

    0Reply
  • Zhenyang Jin
    OP
    Member since 2018 · 72 posts · 25 votes
    7mo

    @Michael Plaks and @Aaron Zimmerman,

    Thanks for the reply. With your help, I understand it can be deuct the remaining unamortized costs at refinancing. 

    About the deduct it as "amortization expense", "financing costs" or "interest expense". Here is what I found by searching "unamortized loan costs as amortization expense or interest expense" in Google:

    Unamortized loan costs (debt issuance costs) should be amortized and reported as interest expense over the life of the loan. Under GAAP, these costs are treated as a reduction of the liability rather than a separate intangible asset, with the amortization expense adjusting the effective interest rate.

    Key Details on Loan Cost Treatment:

    • Interest Expense: Amortized loan costs are considered part of the cost of borrowing and are included in interest expense.
    • Amortization Method: Use the effective interest method for amortization to ensure a constant rate of interest over the life of the loan.
    • Treatment of Unamortized Balance: When a loan is paid in full, any remaining unamortized loan costs are charged to interest expense.

    I am newbie in Tax. Feel free to correct me if I am wrong.

    Regards, Zhenyang Jin

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  • Fulton Abraham Sanchez
    CPA| New Clients Welcome| 50 States · Member since 2016 · 440 posts · 94 votes
    7mo

    @Zhenyang Jin, hi. When a bridge loan is paid off early through a refinance, any remaining unamortized loan costs can generally be written off in the year of payoff. These costs, such as points and processing fees, are typically capitalized and amortized over the loan term but become deductible once the loan is extinguished. However, the deduction is treated as a write-off of financing costs rather than as interest expense. This still reduces taxable income, though it may appear differently on the tax return. It’s important to review the loan structure and lender details, as certain refinances may require continued amortization instead of a full write-off.

    1Reply
    • Zhenyang Jin
      OP
      Member since 2018 · 72 posts · 25 votes
      7mo

      @Fulton Abraham Sanchez

      Thanks for help. After refinance, you deduct it as "finance cost" category expense instead of "interest expense" or "prepaid interest". May I know where this theory comes from? Does it come from a rule of FASB?

      Regards, Zhenyang

        

      0Reply
  • Zhenyang Jin
    OP
    Member since 2018 · 72 posts · 25 votes
    7mo

    @Michael Plaks @Aaron Zimmerman

    When I look at the book << Every Landlord's Tax Deduction Guide>>:
    Chap 8 Section about "Points and Prepaid Interest", it mentioned:

    "

    The most common type of prepaid itnerest is points ....

    If the loan ends early because you pay if off, refinance or lose the property through foreclosure, the remaining undeducted points can be deduct the final year....

    The first year you deduct points, you must list the amount in the amortization section of IRS Form 4562, Depreciation and Amortization. You then add the amount to your other mortgage interest deduction you list on IRS Schedule E.

    "

    This also makes me think of points as interest expense. May I know where is wrong.

    0Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    7mo

    @Zhenyang Jin

    We can spend a long time dissecting the intricacies of strict accounting rules under GAAP, the intricacies of tax rules (which suggest treating points slightly differently from the rest of the loan acquisition costs) - or we can stick with the practical world of tax preparation. :)

    What @Aaron Zimmerman and I suggested is the latter. And anyway, it ultimately does not matter (for most practical purposes) on which line you put a deduction.

    PS. Please don't trust AI when it comes to taxes. It's not ready to be helpful yet.

    2Reply
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