Hi. If I refinance 1 property to buy another, are the refi costs expensed, capitalized with the original property, or capitalized with the new property? Thanks
The debt issuance cost is not added to the basis of either property. They are deducted over the term of the debt.
So the cost that you incurred will be on your books are Financing Cost and deducted ( amortized) over the term of the debt.
Hope that helps.
What @Ashish Acharya said, plus couple clarifications.
The new loan and related costs are supposed to be split between the new and the old property. The old property retains the part equal to the balance of its old loan and deducts the corresponding part of interest. The remainder (assuming it was spent on the new purchase) is attached to the new property.
The loan costs are split in the same proportion, and each part is amortized under the respective property.
If the old property had remaining unamortized costs from the old loan - those get deducted in full.
I know this sounds like too much hassle, but it is the correct treatment. Most people cut corners here.
Thanks for the replies.
One more unrelated question. Do I need to issue 1099s to contractors that did standard renovations over $600? Thanks