Can I deduct original loan costs when I refi?

Question

I bought a rehab with a construction loan.  The rehab period lasted 2.5 months and ended 10-8.  I refinanced to a 30 year on 10-31.  When I bought the property, the Origination Fee and Closing costs were added to the cost basis of the property.  Is that correct - meaning they will be depreciated instead of amortized?

Steven Hamilton II · Answer

@Bill Briscoe ,

That changes things. From how you posed the information it sounded as though it was a flip.

Was this a different lender?

"Loan or mortgage ends. If your loan or mortgage ends, you may be able to deduct any remaining points (OID) in the tax year in which the loan or mortgage ends. A loan or mortgage may end due to a refinancing, prepayment, foreclosure, or similar event. However, if the refinancing is with the same lender, the remaining points (OID) generally are not deductible in the year in which the refinancing occurs, but may be deductible over the term of the new mortgage or loan."

This is provided the property is in service.

Steven Hamilton II · Answer

If this is a rehab you would be treating the property as inventory and you would be able to deduct it only when the property finally sold.

Bill Briscoe · Answer

I bought a rehab with a construction loan.  The rehab period lasted 2.5 months and ended 10-8.  I refinanced to a 30 year on 10-31.  When I bought the property, the Origination Fee and Closing costs were added to the cost basis of the property.  Is that correct - meaning they will be depreciated instead of amortized?

Now that I have refi'd, can I deduct any of the Orig/closing costs from July as that loan is no longer in effect?