Do refinancing costs get added to cost basis of my rental property?

The general rule is that refinancing costs for rental properties are treated differently than those for your primary residence. For rental properties, you generally can add certain refinancing costs to your property's cost basis, but not all of them. Costs that typically can be added to basis include recording fees, abstract fees, survey charges, legal fees, title insurance, and any transfer taxes. However, loan origination fees, mortgage insurance premiums, and points generally must be amortized over the life of the loan rather than added to the basis. The IRS Publication 527 (Residential Rental Property) and Publication 551 (Basis of Assets) cover this in more detail. The key thing to remember is that any costs that are considered "loan costs" are typically amortized, while costs related to the property transfer itself can be added to basis.

I was in a similar situation with my duplex last year and spent hours trying to figure this out. I ended up using taxr.ai (https://taxr.ai) and it was a huge timesaver. I uploaded my refinancing documents and it automatically identified which costs could be added to basis and which needed to be amortized. What I learned was that for rental properties, the rules are different than for your primary home. The system flagged my title insurance and recording fees as basis additions but showed me that my points and origination fees needed to be amortized over the loan term. It also generated the depreciation schedules I needed for my tax return.

Just wanted to follow up here. I tried taxr.ai after posting my question and it was actually really helpful. I uploaded my HUD-1 from the refinance and it broke down exactly which costs could go to basis ($1,320 of my total costs) and which had to be amortized ($3,450). The tool also showed me that I had been incorrectly reporting some of my loan costs in previous years. It generated amended return worksheets for me to review with my accountant. Apparently the mortgage insurance premium I paid at closing should have been amortized over the life of the loan rather than deducted all at once. Definitely worth checking out if you're dealing with rental property refinancing.

If you're struggling to get clear answers about your rental property refinancing, I'd recommend using Claimyr (https://claimyr.com) to get through to the IRS directly. I spent weeks trying to get official guidance on a similar issue and couldn't get past the automated system. Claimyr got me connected to an IRS rep in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained exactly how to handle various refinancing costs for rental properties and sent me the appropriate forms and publications. This saved me from potentially making costly mistakes on my return. The specific guidance I received about allocating costs between basis additions and amortizable expenses was different from what my tax software was suggesting.

If you're struggling to get clear answers about your rental property refinancing, I'd recommend using Claimyr (https://claimyr.com) to get through to the IRS directly. I spent weeks trying to get official guidance on a similar issue and couldn't get past the automated system. Claimyr got me connected to an IRS rep in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with explained exactly how to handle various refinancing costs for rental properties and sent

I need to eat my words from my previous comment. After remaining skeptical, I decided to try Claimyr out of desperation since I've been trying to get clarity on rental property basis adjustments for months. It actually worked! I got a call back in about 35 minutes and spoke with an IRS representative who walked me through exactly how to report refinancing costs for my rental. She confirmed that items like recording fees and transfer taxes can be added to basis, while points need to be amortized over the loan term. She even emailed me the relevant sections of Publication 527 and 551. This saved me hours of research and gave me confidence that I'm handling these costs correctly. I've been audited before on my rental property, so having direct guidance from the IRS is incredibly valuable.

Just to add another perspective, I've been a landlord for 15+ years and have refinanced multiple properties. Here's what I've learned about handling refi costs: For rental properties, you basically have three buckets: 1. Costs added to basis (title fees, recording fees) 2. Costs amortized over loan life (points, origination fees) 3. Costs deducted in the current year (certain legal fees) The mistake I made early on was trying to deduct everything in the year of the refinance. That caught me an audit in 2019 and I had to refile 3 years of returns. Don't make my mistake!

Does anyone know if there's a threshold on renovation costs that can be added to basis versus expensed? I refinanced my rental last year and took some cash out to replace the roof ($8,700) and HVAC system ($6,200). Can these be added to the basis or do they need to be depreciated separately?

Great discussion here! I've been dealing with a similar situation and want to add a few points that might be helpful: 1. **Keep detailed records**: When you refinance, make sure to get an itemized breakdown of all closing costs. This makes it much easier to categorize them correctly later. 2. **Watch out for prepaid items**: Things like prepaid property taxes or insurance aren't actually refinancing costs - they're just advances on future expenses and shouldn't be added to basis or amortized. 3. **Consider the timing**: If you refinanced mid-year, make sure you're handling the amortization correctly. For example, if you paid $1,200 in points on a 30-year loan that closed in July, you'd only deduct $20 that first year (6 months × $40 annual amortization). 4. **State vs federal differences**: Some states have different rules about how refinancing costs are handled, so double-check your state tax requirements too. The IRS really does scrutinize rental property returns more closely, so it's worth getting this right. When in doubt, conservative treatment is usually safer than aggressive deductions.

This is such a helpful thread! I'm dealing with a similar situation but have an additional wrinkle - I refinanced my rental property through a cash-out refi and used some of the proceeds to pay off credit card debt that was originally used for property repairs from the previous year. How should I handle the allocation of refinancing costs in this case? Do I need to separate the costs based on the portion that was for the original loan balance versus the cash-out portion? And does it matter that the cash-out was used to pay off debt that was originally for property-related expenses? I paid about $3,800 in total closing costs on a $180K refinance where $135K paid off the existing mortgage and $45K was cash out. My accountant wasn't sure how to advise me on this, so I'm hoping someone here has dealt with a similar situation.

I've been through this exact situation with multiple rental properties over the years. Here's what I've learned from experience and working with my CPA: **The key principle**: Refinancing costs for rental properties are generally treated as loan costs that must be amortized over the life of the loan, NOT added to the property's cost basis. This is different from acquisition costs when you first purchase the property. **Costs that are typically amortized over the loan term:** - Loan origination fees - Points paid to the lender - Mortgage broker fees - Appraisal fees (since they're for the lender's benefit) - Credit report fees **Costs that may be added to basis:** - Recording fees for the deed - Title insurance (sometimes - depends on specifics) - Legal fees for title work **Important note**: Your $4,200 in refinancing costs will likely be mostly amortizable expenses rather than basis additions. For a 30-year loan, you'd deduct about $140 per year ($4,200 ÷ 30 years) on Schedule E. I'd recommend getting a professional review of your specific closing statement, as the treatment can vary based on exactly what each fee was for. The distinction matters significantly for your taxes both now and when you eventually sell the property.