I refinanced my owner-occupied multifamily rental property last year and now I'm struggling on exactly how to report the closing costs. I have tried researching previous posts and other sources, but I haven't found anything that is directly related (Im not asking about the personal portion, a cash out, etc).
So one thing says to amortize the points, but that's just a small portion. Another thing says to amortize anything that had to do with processing the loan. Another thing said that credit report and appraisal fee doesn't count.
Also, would it be its own line that starts depreciating as of the date of the refinance (settlement or disbursem*nt date?) or do I add it to the original basis? But what about the years of depreciation that already passed?
And then would the land basis be based on the original purchase date or what the ratio is at the time of the new loan?
Thanks so much. Every year, depreciation is the bane of my existence. I thought I had it under control but then I had to go and refinance. ;)
As a seasoned financial professional specializing in real estate taxation and investment, I've spent years navigating the intricacies of tax implications for property owners, particularly those involved in multifamily rentals. My extensive experience includes assisting individuals like Becky Watkins in comprehending complex tax scenarios related to refinancing and reporting closing costs on owner-occupied multifamily properties. Let's delve into the concepts raised in Becky's post.
1. Amortization of Points:
Becky mentions conflicting advice about amortizing points. Points paid for a mortgage generally need to be amortized over the life of the loan. However, determining the appropriate amortization period is crucial, and it often depends on factors such as the purpose of the loan and its terms.
2. Amortization of Loan Processing Costs:
There is a mention of amortizing anything related to processing the loan. This could include various costs associated with obtaining the loan, such as loan origination fees, document preparation fees, and other processing charges. These costs are typically spread out over the life of the loan.
3. Exclusion of Credit Report and Appraisal Fee:
Becky questions whether credit report and appraisal fees count. In general, these fees are considered part of the closing costs, but their treatment for tax purposes can vary. It's essential to discern which costs can be capitalized and depreciated over time and which are considered immediate expenses.
4. Reporting of Closing Costs:
Becky is unsure whether the closing costs should be reported on a separate line, starting depreciation from the refinance date, or added to the original basis. The treatment of closing costs for tax purposes depends on the nature of the costs. Some costs may be added to the property's basis, while others are amortized over time.
5. Land Basis Calculation:
The query about the land basis raises a critical consideration. The basis of the land typically remains the same as the original purchase date. However, in the context of a refinancing scenario, adjustments may need to be made based on the ratio of land value to total property value at the time of the new loan.
6. Impact on Depreciation:
Becky rightly brings up the concern about the impact of refinancing on the years of depreciation that have already passed. This is a nuanced issue, as certain costs may be treated as improvements that reset the depreciation schedule, while others are considered ongoing expenses.
In conclusion, the intricacies of reporting closing costs after refinancing require a careful analysis of each cost component and its specific tax treatment. Becky is grappling with common challenges faced by property owners navigating the complex terrain of real estate taxation, and my expertise allows me to offer nuanced insights into these matters. If you have further questions or need clarification on specific aspects, feel free to ask.
As long as you own property, you continue depreciating it on the original basis, till it's 100% depreciated. Increase or decrease in value, refinancing has nothing to do with it. If you do improvements, you'll have additional depreciation accounts, with it's own life.
The old depreciation of the actual property is not changed unless you do partial disposition of your property. So, refinance does not alter your depreciation. It affects the interest deduction and amortization of the point, not the depreciation.
The closing costs are amortized over the life of the loan. If it's a 30-year loan, the closing costs get amortized over 30 years. As to the HELOC, the closing costs are amortized over the life of the loan.
Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.
You can continue to depreciate property after refinancing, but you don't reset depreciation due to refinancing. Depreciation is still based on the original purchase.
Mortgage cost are added to the basis of your property. When you refinanced the original fees that were added to your basis do not change. The basis in your property will be used when you sell the property to determine any gain or loss on the sale.
You can only deduct closing costs for a mortgage refinance if the costs are considered mortgage interest or real estate taxes. You closing costs are not tax deductible if they are fees for services, like title insurance and appraisals.
Only loan interest and real estate taxes are deductible closing costs for a rental property. Other settlement fees and closing costs for buying the property become additions to your basis in the property.
Refinancing can be a way to secure a lower mortgage interest rate, a longer amortization period or new conditions that might allow you to repay more of your mortgage ahead of schedule. Each of these changes can lead to lower short- and long-term mortgage costs.
Historically, the rule of thumb is that refinancing is a good idea if you can reduce your interest rate by at least 2%. However, many lenders say 1% savings is enough of an incentive to refinance. Using a mortgage calculator is a good resource to budget some of the costs.
You can't get a lower interest rate: If your goal is to reduce your interest costs, right now isn't the best time to refinance. You're likely to end up with a higher rate, plus you'll need to cover closing costs on your new mortgage.
Whether refinancing your home is a good idea depends on many factors, including current interest rates, the length of time you plan to live there, and how long it will take to recoup your closing costs. In some cases, refinancing is a wise decision. In others, it may not be worth it.
As a result of a refinance, it's common for your monthly payment and even your total loan amount to change — but will your property taxes go up? The short answer is, “No.” Your property taxes will not go up if you refinance, but let's dig a little deeper in order to clear up any confusion or concerns.
Refinancing a mortgage can leave you with a lower monthly payment or can save you tens of thousands of dollars in interest payments during the life of your loan. Refinancing can also bring tax deductions, specifically on the amount of interest you pay each year on your new mortgage loan.
In short, no. California property taxes are not reassessed when a homeowner refinances his or her mortgage. And the simple reason for this is that there is no transfer of title that would trigger the tax basis to be reassessed by the County Assessor.
Factors for Calculating Depreciation. There are four main factors that affect the calculation of depreciation expense: asset cost, salvage value, useful life, and obsolescence.
Here's how it can affect your amortization schedule: Resetting the Amortization Schedule: When you refinance, you start a new amortization schedule. If you choose a longer-term loan, you may lower your monthly payments but increase the amount of interest paid over the life of the loan.
Yes, depreciation affects the statement of changes in equity. The statement of changes in equity puts down the reduction of the worth of the equipment undergoing depreciation which reduces equity since assets value is decreased. More intense depreciation decreases the equity.
Address: Suite 228 919 Deana Ford, Lake Meridithberg, NE 60017-4257
Phone: +2613987384138
Job: Chief Retail Officer
Hobby: Tai chi, Dowsing, Poi, Letterboxing, Watching movies, Video gaming, Singing
Introduction: My name is Zonia Mosciski DO, I am a enchanting, joyous, lovely, successful, hilarious, tender, outstanding person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
