In 2020 I bought a condo as a rental investment property. I did a home loan.
On top of the house price I had a bunch of costs like:
LOAN CHARGES (Origination fee, appraisal, flood certification, …) – these are costs related to the mortgage
CLOSING CHARGES (Closing fees, title fees, title insurance, recording fees, real estate attorney fees,….) – these are costs related to the closing
All these costs are summarized in my ALTA settlement.
Do you deduct these costs as expenses or you add them to the property value or something else?
February 24, 2021 7:05 PM last updated February 24, 2021 7:28 PM Connect with an expert
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Expert AlumniMost closing costs are not deducted as expenses. The following settlement fees and closing costs for buying the property are part of your basis in the property. These are entered in the Assets/Depreciation section of TurboTax. The IRS, Chapter 2, page 7, considers these amortizable intangibles and accounting rules dictate that those are to be depreciated instead of deducted as an expense.
• Charges for installing utility services.
Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
The following are settlement fees and closing costs you can’t include in your basis in the property. You can include these as expenses.
1. Fire insurance premiums.
2. Rent or other charges relating to occupancy of the property before closing.
3. Charges connected with getting or refinancing a loan, such as: a. Points (discount points, loan origination fees), b. Mortgage insurance premiums, c. Loan assumption fees, d. Cost of a credit report, and e. Fees for an appraisal required by a lender.
Also, don’t include amounts placed in escrow for the future payment of items such as taxes and insurance.
To enter your rental improvements, simply follow the directions to enter your rental income and expenses . At some point you'll come across the Rental Summary screen.
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Here's the more simplified version.
- Cost related to the acquisition of the loan are amortized (not capitalized) and deducted (not depreciated) over the life of the loan. An example of this would be your loan acquisition fee and if your lender required a survey as part of the loan approval process, the servey fee.
- Cost related to acquisition of the property are added to the cost basis of the property. They get capitalized and depreciated over time. An example of this would be the property transfer fees paid at the courthouse to change the name on the deed from the seller, to you.
Depending on your specific situation, the program may (or may not) split these cost appropriately for you. If not, then your loan acquisition costs are entered in the assets/depreciation section as "other asset" so that you can identify those cost as an "amortizable" asset, and not a capitalized asset.
February 25, 2021 6:20 AMThanks! Now things are clear, at least for the closing costs.
My last doubt is about the mortgage initiation costs. You say that these are amortized. What does that mean?
Where do I enter these costs when I do my Turbotax?
February 25, 2021 6:51 PMHere's the explanation, and some of it you may already know. But bear with me for those reading this thread who may not know.
Amortized costs are actually deducted from taxable imcome over time, permanently and forever.
Capitalized costs, are depreciated over time, but are not forever. Depreciated costs reduces your taxable income for each year the asset is depreciated. However, in the tax year you sell or otherwise dispose of that asset, the depreciation is recaptured and taxed in the year of the sale. So.
Amortized costs are deducted over time, and those deductions are permanent and forever.
Capitalized costs are depreciated over time, with the depreciation recaptured at some point in the future, and taxed.
To enter your amortized (and permanently deductible) costs, that must be deducted over the life of the loan, in the assets/depreciation section select the "Add and Asset" button.
- Select Intangibles/Other Property and continue.
- Select Amortizable Intangibles and continue.
- Enter the description (something like loan fees or whatever)
- Enter the amount
- Enter the closing date of the purchase, then continue.
- Select Purchased New, Used 100% for business, and enter the closing date of the purchase, then continue.
- For Code Section, select 163-Loan Fees and continue.
- Useful life in years will be the loan term. Usually it's either a 15 year loan or a 30 year loan. Enter the correct number and continue.
- Click continue again, and you're done.
February 25, 2021 7:15 PMNow it's all clear
February 25, 2021 7:29 PMFor " Used 100% for business " in your answer, I have two questions
1. If I had some personal used days for my rental but then I rented it for a long term, I didn't used it 100% for business for the first year but it was not my residence either, can I amortize those costs in the same way you described in your answer?
2. if I rented my house as a vacation home and it is my residence, can I amortize those costs in the same way you described in your answer?
October 2, 2023 6:49 AM1. If I had some personal used days for my rental but then I rented it for a long term, I didn't used it 100% for business for the first year but it was not my residence either, can I amortize those costs in the same way you described in your answer?
When it comes to long term rental, what the property was used for before you converted it to a rental, does not matter and does not count for anything.
2. if I rented my house as a vacation home and it is my residence, can I amortize those costs in the same way you described in your answer?
I'm finding it hard to follow you here. I think it's the way you're wording things here. You can't rent out property "as a vacation home". But you most certainly can rent out all or a portion of your vacation home to someone either long term or short term. A house can not be both a vacation home, a rental and a primary residence at the same time. Perhaps you rented out a room in your primary residence for a defined period of time? Maybe you rented out a portion of your vacation home for a defined period of time? There are criteria in IRS Pub 527 and define short term rental, long term rental, and a section that covers renting out a portion of your primary residence for either long or short term.
Since your post is an add-on to an existing thread, it would be best if you would start your own thread giving the specifics of your particular situation, so your questions can be understood in "your" context.
