[Jaykid007]

Hello,
I wanted to get a few opinions regarding refinancing a rental property and the closing costs associated with it. I wanted to clarify what I read in the pub 527.

What closing costs can you depreciate and capitalize over the life of the loan? I know that you can deduct points or loan origination fees, however the pub says you can also capitalize abstract costs as well as recording fees. THe remaining expenses can be added to the cost basis when the property is sold.

In checking with an EA friend of mine, he told me he usually just does the points and does most of the rest of the closing costs when it is sold. Any thoughts would be appreciated. Thanks!

[AtlantaTaxExpert]

I always write off the points in the year the loan is originated. Why wait?

The rest of the closing costs should be added to the basis of the property, to be depreciated over the live of the property.

[Jaykid007]

I always write off the points in the year the loan is originated. Why wait??

The rest of the closing costs should be added to the basis of the property, to be depreciated over the live of the property.

I guess I could do that. I thought you always had to depreciated on a rental property and the whole amount could be deducted on a primary? Also, I thought the closing costs only were added to the cost basis when the property was sold and not depreciated over the live of the property.. I only depreciate the improvement portion of the property.

[AtlantaTaxExpert]

You know, you are right. The points and loan orgination fee DO have to be capitalized. I thought we were talking about the original loan, not a refi.

The closing costs CAN be capitalized, however. They are valid costs added to the property's basis, so they can be depreciated as well.