Loan Bundling and Tax Reporting

2 Replies

I have 5 Single Family Homes with 5 separate mortgages that I am thinking about refinancing into a single loan (loan bundling). At the end of the year how would the interest be reported on Schedule E? Would the interest on that single loan be subdivided and shared equally for each home?

@Jonathan Vu Interesting questions. I'm note familiar with any tax court cases that

have specifically addressed this issue, so going based off of that disclosure, here are my thoughts:

I wouldn't be too keen to simply divide the interest expense by five. Not only is that a poor accounting procedure, but as an investor, it won't show you the true return any specific property is generating. Some properties will now be paying more interest and others will be paying less.

I'd try to utilize some form of a weighted average, maybe based on gross revenues the properties generate or square footage. Reporting this way would be more accurate as to the true interest expense each property should be assigned. When you determine the weighted percentages per property, write them down and use them indefinitely.

In a situation like this, you can porbably go either way, just know you will need to substantiate your basis (reasoning) in the event of an audit.

Medium logo blackBrandon Hall CPA, The Real Estate CPA | | Podcast Guest on Show #196

Thank you. It makes sense to proportion out the interest expense. I think your suggestion to do so based on revenue would be the best way to go, since interest expense and revenue are both financial metrics (as opposed to square footage). Thanks again!