How to book lender credits on a refinance

3 Replies

Hi, I do my own bookkeeping and am trying to figure out the proper way to book a refinance on an investment property.

The refinance was a zero-cost refi with a huge credit of -0.75 points (on a $1.6M loan). This covered all closing costs, prepaid interest, initial escrow, AND left me with a $5k check after close.

Normally when you pay points you amortize them over the life of the loan, but I'm having trouble finding information on how to book negative points. Do lender credits get treated the same way? In other words, debit the lender credit to a "Loan Fees" Non-Current Asset account? Doing this would result in a negative balance, which would imply I have to amortize this as income (or deduct against interest expense) over the life of the loan.

Any CPAs out there that know the "right" thing to do here? Thanks in advance! :)

Originally posted by @Nick E. :

Hi, I do my own bookkeeping and am trying to figure out the proper way to book a refinance on an investment property.

The refinance was a zero-cost refi with a huge credit of -0.75 points (on a $1.6M loan). This covered all closing costs, prepaid interest, initial escrow, AND left me with a $5k check after close.

Normally when you pay points you amortize them over the life of the loan, but I'm having trouble finding information on how to book negative points. Do lender credits get treated the same way? In other words, debit the lender credit to a "Loan Fees" Non-Current Asset account? Doing this would result in a negative balance, which would imply I have to amortize this as income (or deduct against interest expense) over the life of the loan.

Any CPAs out there that know the "right" thing to do here? Thanks in advance! :)

You probably have to pick up income right away because you are most likely a cash-basis taxpayer. The amount is not material enough to worry about this too much. Most conservative way - pick up as other income. We can make this as complicated as we want but it is not worth it. 

Investment "points" aren't on a Schedule A. They are a capital expense. But you got a capital credit. There is no deduction. These costs: Abstract, legal, recording, survey transfer tax, title insurance are added to the basis or the price point where you start for the value of the house. Lender credit to pay costs, then you have nothing to add.  Escrow deposit is not deductable as you have not yet paid property taxes they are only held in a trust account (with no interest to you) when the impound pays the bills in the future you can write those off.  Cash out is treated as debt re-structuring per the Tax Cuts and Jobs Act of 2017 --- be careful with where the money goes and how you account for it. You can't take the $5000 credit back and pay off your personal credit card and deduct the interest of the $5000 on the total loan in the future. You write the interest on Schedule E subject to passive activities loss limitations. Proceeds should go towards improving that same property, or you need one of the Big Four accounting firms on retainer.

This is not tax advice I am not a CPA. I am only talking about my personal experience.


    Thanks, Ashish, that makes sense! I was trying to avoid booking it as income, but you're right that's going to be the least complicated thing to do.

    Cheers! -n