Can refinancing costs be added to the cost basis of my rental property?

Thanks for clarifying! So if I understand correctly, out of my $6,800 in closing costs, things like the appraisal fee, loan origination fees, and mortgage application fees would need to be amortized over the loan term (30 years in my case). But the title insurance and recording fees could potentially be added directly to my cost basis? Is there a specific IRS publication or form I should be looking at to make sure I categorize everything correctly?

Yes, you've got the concept right! For your 30-year loan, expenses like loan origination fees and mortgage application fees would be amortized over the 360 months of your loan term, giving you a small deduction each year. IRS Publication 527 "Residential Rental Property" covers the basics, but for the specific treatment of refinancing costs, you might want to also check Publication 535 "Business Expenses" which covers amortization in more detail. Form 4562 is where you'll report the amortization expenses each year when you file your taxes.

How does that actually work? Do you have to give them all your personal info? I'm always worried about security with tax stuff.

Did it give you different advice than what the accountant above mentioned? I'm wondering if there's some grey area with these refinancing costs that could be interpreted differently.

The security part is actually pretty solid - they use bank-level encryption and don't store your documents after analysis. You just upload the relevant forms (like your closing disclosure), and it uses AI to analyze the document without needing your SSN or anything super sensitive. Their classification actually aligned with what the accountant mentioned above, but it went through line-by-line on my closing disclosure to identify exactly which fees were which. There is some grey area with certain fees, and they showed alternative interpretations with citations to tax code, which was helpful when discussing options with my accountant.

Wait that actually works? I thought it was impossible to get through to the IRS these days!

Sounds like a scam to me. How would some random service have better luck getting through to the IRS than anyone else? They probably just charge you and then you still wait on hold forever.

It definitely works - they use some kind of call technology that continuously redials and navigates the IRS phone system until they get through. When I used it, I got a text when they were connected to an agent, then my phone rang and I was talking to an actual IRS person. The IRS has different phone lines and departments with varying wait times. What Claimyr does is essentially automate the process of trying different paths through the phone system to find the shortest queue. It's not magic - just persistence and technology that most individuals don't have access to.

That's a great point! I did actually pull out about $15,000 during the refinance, but I used most of it to consolidate some credit card debt, not for property improvements. Would any portion of that still affect my basis?

Unfortunately no, only money used directly for capital improvements to the property can be added to your basis. When you use cash-out funds for personal expenses like credit card debt, that portion has no impact on your rental property's tax basis. This is actually an important distinction that trips up many rental property owners. The use of the funds determines the tax treatment, not just the fact that they came from a property refinance.

What kind of documentation did they want to see during the audit? I'm always paranoid about not keeping the right paperwork.

They wanted to see the original purchase documents, every refinance closing disclosure, receipts for all improvements I'd made to the property, and my calculations showing how I determined what to amortize versus add to basis. They also scrutinized my depreciation schedule closely and questioned why certain items were categorized as improvements versus repairs. My advice is to keep absolutely everything - digital copies of all receipts, closing documents, loan paperwork - and have a clear system for tracking what you've added to basis and why.

This is incredibly helpful! I never thought to look at it section by section on the closing disclosure. I've been staring at this document for weeks trying to figure out what goes where, and your breakdown of Section B vs Section C makes so much sense. The point about unamortized loan costs being deductible in the year of sale is also something I hadn't considered. That actually makes me feel better about having to spread out these deductions over 30 years instead of taking them all upfront. I'm definitely going to go back through my closing disclosure now with this framework in mind. Thanks for sharing your experience - it's reassuring to hear from someone who's been through this process multiple times!

Great questions about multiple refinances! Yes, you do need to maintain separate amortization schedules for each refinance - it can get complex but it's necessary for accurate tax reporting. Here's how it typically works: when you refinance again, any remaining unamortized costs from your previous loan get deducted in full in that year (since you're paying off the old loan), and then you start a new amortization schedule for the new refinance costs over the new loan term. For example, if you had $3,000 in unamortized costs remaining from your first refinance when you do your second refinance, you'd deduct that full $3,000 in the year of the second refinance, then start amortizing the new closing costs. Regarding switching from investment to commercial loan products - the treatment should be the same since you're still dealing with the same rental property. The loan type doesn't typically change how closing costs are categorized (financing costs vs. property costs), but I'd definitely recommend confirming this with a tax professional since commercial loans can sometimes have different fee structures. The bookkeeping can definitely get messy, which is why keeping detailed records from day one is so important!

Welcome to the rental property world! For tracking amortization schedules, I personally use a simple Excel spreadsheet with separate tabs for each refinance. I set up formulas to calculate the monthly amortization amounts automatically, so I just need to reference it each year when doing taxes. Some people use property management software like Buildium or Rent Manager that can track this stuff, but honestly a well-organized spreadsheet works just fine. Regarding tax preparers - this is hit or miss unfortunately. Many general tax preparers don't deal with rental properties regularly and may not fully understand the refinancing cost nuances we've discussed here. I'd recommend specifically looking for a CPA or EA (Enrolled Agent) who advertises experience with real estate investors. When interviewing potential preparers, ask them specifically about how they handle refinancing costs for rental properties - their answer will tell you quickly if they know their stuff. Don't be afraid to educate your preparer if needed! Bring documentation like your closing disclosure with your own notes about which costs should be amortized vs added to basis. A good tax professional will appreciate your preparation and organization.