Is my refinance tax deductible?

5 Replies

I closed on a refinance for one of my rental properties last November. The re-fi was about $3249 in fees and another $831 in pre-paid interest. I got a 1098 form for my pre-paid interest. However, I still have another $3249 in closing costs. My assumption is that all $3249 + $831 is tax deductible.

Inspection: $700

Origination Fee: $1320

Closing fee/Title fee: $1116

Recording Fees: 113

Total = $3249

On the schedule E form there is a spot for interest. However, I'm going to add in $3249 under the section for "other" and label it "refinance"

Am I missing something?

Originally posted by @Natalie Kolodij :

Refi costs are capitalized and amortized over the life of the loan.

So if my re-fi costs were $3249 I would divide that by a 30 year loan and deduct $108.30/year?

Updated 2 months ago

This is a copy and paste from the turbo tax website, "The costs associated with obtaining a mortgage on rental property are amortized (spread out) over the life of the loan. For example, if it cost you $3,000 to refinance your 30-year mortgage, you'd be able to deduct $100 per year for the next 30 years."

@Adam Christopher

it depends on the period that you refi'ed for.

If you did a refi over a 30 year term; you would amortize it over 30 years.
However, if you did a refi over a 20 year term; you would amortize it over 20 years.

Basit Siddiqi, CPA
917-280-8544

Last question.

I have a 30 year loan.

What happens if I end up refinancing again in 10 years? My total refinance cost was $3249 and if I deduce 108/year, I will have deducted 1,080 for 10 years. What happens to the remaining balance of $2169? 

On the 10th year, do I get to deduct the remaining balance of $2169?

The main reason I ask this is because I also refinanced the property in May 2009.

Bumping this thread hoping someone can give an answer to that last question. 

I'm in a similar but bit different scenario. I purchased a property cash then did a delayed financing loan shortly after. 

https://www.therealestatecpa.com/2016/05/22/ultimate-guide-irs-schedule-e/ 

Reading through @Brandon Hall 's article and the IRS publications it seems some items go to adding to the property cost basis and get depreciated, others apply to loan cost basis and are amortized over the duration of the loan. Can someone chime in if the refinance adds more to the property cost basis or if one of the closings can be deducted this year?

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