writing off remaining unamortized loan costs

[gibsonrr]

A client has refinanced a rental property in which previous loan costs were set up to be amortized. Now that he has re-financed, I need to expense the remaining unamortized loan costs since the loan was paid off. There used to be a depr screen where that was easily done. However, not anymore. After calling Intuit, the tech rep could not come up with an answer other than sending me an article on setting up loan closing costs. 

[dascpa]

Loan costs capitalized for a rental property should be part of your depreciation worksheets as an amortized intangible.  you do not "dispose" of intangibles the same way you do for tangible fixed assets.  Report the unamortized balance as a current year expense on the depreciation worksheet. Then next year remove the fully amortized intangibles from your file.

[gibsonrr]

That's what I was trying to do. The program used to allow you to do that. The Intuit person I spoke with said I would have to do an override which I tried but it showed as a red error entry when I did that. After being on hold for over an hour while she tried to find someone who knew how to make the entry, she could not come up with a solution. She then sent me an article about setting up closing costs, etc. .

[rbynaker]

I generally avoid overriding things on the depreciation screen.  I will manually make a "date sold" entry (but no sale price) on the asset worksheet using the refi date.  Then look at the depreciation schedule and manually enter the remaining basis as an other deduction on Schedule E as "Write off loan costs."  Having the sold date in there will remove it from depreciation/amortization next year.

[gibsonrr]

I thought about doing that as a last resort but I remembered there used to be a way to do that by simply entering the "sale date" as you suggested. The Intuit person wanted me to set it up as a new asset and write off the balance in the same year. She also wanted me to change the IRC code from the original. I didn't like that idea and so posted here. Your solution sounds like the way to accomplish it in the current software. Thanks for your help.

[dennisj1]

I have a similar issue where a Commercial tenant defaulted on a lease.  The remaining deferred unamortized lease commissions MUST be written off.  Unamortized loan costs are just another category of Intangible assets on the balance sheet (and depr. sch.)  Here's a case reference related to leases, you might start there and then find similar IRS guidance to support W/O remain deferred unamort loan costs.  Then get back to Lacerte on your issue.  See Oliver Iron Mining Co. v. Com, 13 T.C. 416, 418, n. (1949).

[abctax55]

"..Then get back to Lacerte on your issue" Except @dennisj1, this is a PS software question.

[THL1961]

I have a residential rental property mortgage loan that was paid off early (not refinanced) on 12/13/2021 instead of 2025. There is a balance of $237 of unamortized loan costs as of 12/31/20. During my research on how to handle the unamortized balance of loan costs, I found 3 common opinions:

1) Report the unamortized balance as a current year expense  2021 Exp->$237

2) Add them to your refi costs of the new loan and that new total gets deducted over the life of that new loan (Not applicable in this instance), or

3) Leave the original entry for those amortized costs on the old loan and they will continue to be deducted over the original lifespan of that old loan. 2021 Exp->$49

Does anyone have any definitive ruling?

[THL1961]

I have a residential rental property mortgage loan that was paid off early (not refinanced) on 12/13/2021 instead of 2025. There is a balance of $237 of unamortized loan costs as of 12/31/20. I noticed that you planned to expense your clients unamortized loan costs for a loan the client refinanced. Would you share where you got your instruction on writing off lump amount in current year.  During my research on how to handle the unamortized balance of loan costs, I found the following 3 common opinions, but nothing directly from IRS:

1) Report the unamortized balance as a current year expense  2021 Exp->$237

2) Add them to your refi costs of the new loan and that new total gets deducted over the life of that new loan (Not applicable in this instance but if relative I saw that it may depend on whether refinanced with same company or depending on terms of terms.), or 

3) Leave the original entry for those amortized costs on the old loan and they will continue to be deducted over the original lifespan of that old loan. 2021 Exp->$49

[THL1961]

Also for anyone reading this blog on their own behalf. The 2nd opinion I posted above I don't believe has much weight since I have info from a conversation I had with an IRS agent in 2009 that the only loan costs that should be amortized or added to cost basis of a building are those for START UP COSTS, not refinancing for lower int rate, remove PMI.  Loan costs for refinancing for this type of thing, not related to startup costs, should be expensed in year incurred. Also my notes indicated that Pub 527 where it reads under heading "Expenses paid to obtain a mortgage"...this only pertains to Loan costs associated to start up costs, although misleading.