Database / SQL Developer · Round Rock, TX · Member since 2015 · 13 posts · 2 votes
I'm trying to do my 2015 taxes. I bought my very first two rental properties towards the end of 2015 so I have no previous experience with this.
From what I understand, loan origination costs cannot be included in the basis of a rental property nor can they be deducted in the year incurred but instead must be amortized over the life of the loan. That seems fairly simple.
Yet I cannot for the life of me find where I'm supposed to enter this in my tax software (H&R Block Premium) or directly on a form. (I thought Form 4562, Section VI might be it but the description of what to record there does not include loan origination costs.)
I've entered the basis and it's calculated the depreciation but it doesn't ask for loan origination expenditures or anything to be amortized.
Loan points that appear on your 1098 are deductible as mortgage interest. Otherwise, you have to amortize them.
I can't help you with H&R Block tax software. I am a TurboTax user. In TurboTax, for a new rental acquisition, I would enter the points in the same area of the interview where I enter assets to be depreciated. I click the Add Asset button, then "Intangibles/Other Property". I describe the asset as "Loan origination fees" then enter the amortizable points or loan origination fees as "Amortizable intangibles".
Note: Although this asset class description says "refinance expenses", I enter my points as if they were refinance expenses because the tax treatment is exactly the same as the loan origination fees for a new rental acquisition.
From a drop down menu that asks me to select a code section, I choose "Code section 163: Loan Fees" as the method to amortize these expenses.
The final interview question asks me to enter the loan term in years. All the amortization information ends up on an Asset Entry Worksheet, Schedule E, and on my asset depreciation schedule.
Hope this helps. Hopefully, the data entry process is the same for your tax software. Good luck, I know time is short for you to get this completed and submitted.
The ADD ASSET button will come in handy more than you might anticipate. If you replace the roof, water heater, or the HVAC system for your rental property, you will want to depreciate these replacements on a new 27.5 year depreciation timeline starting on the replacement date. The way to do this in your tax software is to ADD ASSETS. When you do a 1031 exchange, the depreciation schedule for the relinquished property becomes the depreciation schedule for the replacement property. You continue to take unused depreciation for the remainder of the relinquished property's depreciation schedule. For the replacement property, any new cash or debt needed to complete the replacement property acquisition as well as any new renovation you performed is added to your depreciation schedule (ADD ASSETS) on a separate 27.5 year timeline. If you provide free-standing kitchen appliances and/or washer and dryer for your tenants use, these personal property items can be depreciated on a five year schedule (again ADD ASSETS).
For the procedure I described, TurboTax software shares the depreciation schedule form, but, puts your loan points into a separate AMORTIZED ASSETS section that is separate and distinct from the DEPRECIABLE ASSETS section.
The annual depreciation expense is added to the annual amortization expense and that total migrates to the depreciation expense line on your Schedule E.