Rental property mortgage expenses

Certa The following are settlement fees and closing costs you cannot include in your basis in the property.

  1. Fire insurance premiums.
  2. Rent or other changes 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.

Neither chapter mentions the treatment that would actually make sense -- amortizing the expenses over the life of the loan. (Publication 535 does mention this treatment.)

It seems to me that chapter 1 of Publication 535 is simply incorrect. Costs related to obtaining a mortgage should be amortized over the life of the loan, not added to the basis of the property. (I know that the difference between acquisition costs and financing costs is not always clear to people, but that hardly justifies pretending that they are the same thing.)

Am I missing something?

Thanks!

Reply to
Ian Pilcher
Loading thread data ...

In chapter 1, the context is current rental expenses.

In chapter 2, the context is adjusted basis at time of in-service.

At first reading, I take this to mean that mortgage expenses prior to in-service date are not included in the in-service starting adjusted basis; while mortgage expenses after in-service date are included in basis (for amortization).

Reply to
Mark Bole

The only issue I have with Pub 527 and the costs to obtain a mortgage that are not considered interest expense is that the pub does not tell you how to recover those costs. It is correct that the expenses are capital expenses and form part of your basis. This would lead one to conclude that your only option is depreciable life of the property. However, Pub 535 Chapter 4 on interest expense tells you correctly that you have an option. You can use depreciation or you can elect to amortize the costs to obtain a mortgage over the life of the mortgage.

Reply to
Alan

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.