Can I capitalize these loan cost

Question

Inside IRS551 Basis of Assets, it mentioned following items are capitalized over the period of the loan:

Points

Mortgage Insurance Premiums

Loan Assumption Fees

Cost of a credit report

Frees for an appraisal required by a lender

Fees for refinancing a mortgage.

However, in the purchase settlement statement, I only see the following costs about loan:

Processing Fee:  $2000

Tax Service:   $95

Wire Fee: $25

UCC Fee:  $10.25

Question: From the name, the listed items are a bit different with the items listed by IRS. Can I capitalize these total cost $2130.25 together? Or some item needs to be excluded and treat as operating expense like Wire Fee?

Regards, Zhenyang

Michael Plaks · Answer

@Zhenyang Jin

If you're securing a loan - do what the underwriter says

If you're closing on a property - do what the title company says

If you're preparing you tax return - do what the IRS says

(In all other cases - do what your wife says)

Aaron Zimmerman · Answer

Without seeing the closing statement, it's a little difficult to help. Usually the bank gives a listing of the loan costs, originations costs, and lender credits on page 1 of the closing disclosure.

Natalie Kolodij · Answer

Here's how I teach this: Would you have paid that cost/fee if you bought the property all cash? If the answer is no, it's a loan cost. If the answer is yes - It's likely a cost that get added to the property basis. (Then there are escrow amounts, current period income/expenses, etc, but those are outside the scope of this question) The "headers" on the CD/ALTA are not always correct for what is technically a loan cost or not.

Christopher Tile · Answer

As @Aaron Zimmerman stated, closing statements will differ. However, when looking at a normal HUD CD, we'll usually capitalize the items under 'origination charges', and 'services borrower did not shop for' as loan costs (less any lender credits).

For the costs under 'origination charges', I'd capitalize points separately, with everything else (usually an application fee/underwriting fee) under the 'loan costs' total.

Jason Malabute · Answer

Without reviewing the actual closing disclosure, it’s difficult to give a precise answer since the breakdown of loan-related costs—such as origination fees, lender charges, and credits—can vary from deal to deal and are typically detailed on the first page of the statement. That said, in most standard closing statements, costs labeled as origination charges and borrower-paid services are generally treated as loan costs (net of any lender credits), with points often separated out and other fees like application or underwriting grouped together. For rental properties, these types of closing costs are not immediately deducted but are instead capitalized and amortized over the life of the loan.

Greg Scott · Answer

This is where a CPA earns their keep.

Michael Plaks · Answer

All 4 fees mentioned in the previous response should be considered part of amortizable loan costs, in my opinion. I consider none if it to be immediately deductible.

Of course, debating deductibility of $25 is not worth anyone's time.

Ashish Acharya · Answer

For the items listed in your purchase settlement statement, here's a breakdown based on IRS guidelines for capitalizing loan costs:

• Processing Fee ($2,000): This fee is generally associated with the loan itself, so it could likely be capitalized as part of the loan costs.
• Tax Service Fee ($95): This type of fee typically doesn't get capitalized but rather should be expensed as part of the loan acquisition costs.
• Wire Fee ($25): This is typically considered an operational cost, and would be an expense, not capitalized.
• UCC Fee ($10.25): This fee is usually associated with the loan process and can be capitalized as part of loan costs.

To summarize, you can capitalize the Processing Fee, UCC Fee, and Tax Service Fee (depending on the situation), but the Wire Fee should likely be expensed. It's always a good idea to consult your CPA to ensure this treatment is applied correctly based on your specific situation. All situations are a little different and would need to be looked at in more detail but potentially it will be treated as I described.

Zhenyang Jin · Answer

@Michael Plaks @Greg Scott, thank you for the help.

Zhenyang Jin · Answer

Greg, yep. I am already out of packet after purchasing apartment. So I am learning myself to save some money. :)

Can I capitalize these loan cost

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