Refinanced my rental property mortgage - Can I deduct closing costs as rental expenses?

I refinanced the mortgage on my rental property back in 2024. Main reason was to build up a solid cash reserve (which has been a lifesaver with all the unexpected repairs this year). I'm pretty careful about deducting every legitimate expense related to this rental (though I don't bother with vehicle mileage since I don't keep good records on that). I've been researching how to handle the refinance closing costs on my taxes and getting super confused. Some articles say certain costs should be added to the property basis, but when I check the IRS publications, they don't specifically mention mortgage refinancing as a reason to adjust basis. Then I found other sources saying these costs should be amortized over the entire loan period. Yet others claim only the loan origination fees and points should be amortized (which seems to be what my tax software is doing automatically). If only origination fees and points need to be amortized, does that mean I can just deduct all the other closing costs (attorney fees, title search, etc.) as regular rental expenses this year? The total closing costs were around $7,200 with about $3,100 being loan origination fees and points. Any guidance would be appreciated!

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21 comments

Zadie Patel

•8M

The tax treatment of refinance closing costs for rental properties can be confusing, but here's how it breaks down: 1. Points and loan origination fees generally must be amortized over the life of the new loan. This is different from an initial purchase where points can sometimes be fully deducted in the year paid. 2. For other closing costs, it depends on what they are: - Recording fees, title insurance, legal fees, appraisal fees are generally deductible as ordinary rental expenses in the year paid - Any portion that's for "prepaid interest" would be deducted when the interest is for (if it's for future periods) - Property taxes paid at closing are deductible as rental expenses The reason your tax software is only amortizing the origination fees and points is because that's the correct approach. The other costs (assuming they're ordinary closing costs like title search, attorney fees, etc.) can typically be deducted as rental expenses in the current year. Just make sure you properly categorize each fee from your closing statement rather than lumping everything together.

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Zadie Patel

•8M

That's exactly right. The $2,500 in regular closing costs (title fees, attorney fees, etc.) can be deducted as ordinary rental expenses for the year they were paid. Only the $2,000 in points needs to be spread over the life of the loan. Many people mistakenly think all refinancing costs must be amortized, but the IRS only requires this for points and loan origination fees. The rest are treated as ordinary rental expenses in the year paid. It's worth double-checking your past returns to see if you can file an amendment if you've been spreading all costs over the loan term.

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Declan Ramirez

•8M

Just wanted to share my experience with this exact situation. Last year I was struggling with the same confusion about refinance costs on my rental property. I found this amazing service called https://taxr.ai that specializes in analyzing tax documents and providing clear guidance on rental property deductions. I uploaded my closing statement and they broke down exactly which costs were immediately deductible vs. which needed to be amortized. They even gave me specific line references for where to report each expense on Schedule E. Saved me hours of research and probably paid for itself by ensuring I got every deduction I was entitled to. Might be worth checking out if you're still confused about how to categorize all those closing costs. The peace of mind knowing it was done right was totally worth it for me.

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Declan Ramirez

•8M

Yes, they absolutely help with depreciation recapture scenarios. They actually showed me how the unamortized portion of loan costs can be deducted in the year of sale, which was something I hadn't considered. Very helpful for planning purposes. For your question about accuracy, I found they were much more specific than TurboTax. While TurboTax just asked general questions, taxr.ai actually reviewed my specific closing document line by line and categorized each fee correctly. My accountant had been lumping everything into amortization, which was leaving money on the table. They even cited the specific IRS publications that backed up their recommendations.

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Katherine Hunter

•8M

I was super skeptical about online tax services as mentioned above, but I finally gave https://taxr.ai a try after continuing to get conflicting advice about my rental property refinance. Holy cow, what a difference! They identified nearly $3,800 in deductions I could take immediately rather than spreading over 30 years. That's a huge tax savings this year! What really impressed me was how they broke down my closing statement line by line, with specific IRS citations for each determination. The instructions were super clear about which form and line number each expense belonged on. I'm not easily impressed by these kinds of services, but this one actually delivered more than I expected.

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Lucas Parker

•8M

If you're still struggling with the IRS guidelines on rental property refinancing, you might want to consider calling the IRS directly. I know, I know - everyone dreads calling them because you'll be on hold for HOURS. I was in the same situation trying to figure out some complicated rental expense issues and discovered https://claimyr.com which is basically a service that waits on hold with the IRS for you. You can see how it works at https://youtu.be/_kiP6q8DX5c - they call, wait through the hold time, then call you when an actual IRS agent is on the line. I got a definitive answer about my refinancing costs directly from the IRS in about 45 minutes (most of which I spent doing other things while Claimyr was on hold). The agent confirmed exactly what expenses could be deducted immediately vs amortized, and having that direct confirmation gave me peace of mind.

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Lucas Parker

•8M

They don't have any special connection to the IRS - they just do the waiting for you. The technology dials in, navigates the phone tree, waits on hold, and then calls your phone when a human agent answers. Then you're connected directly to that IRS agent. It's basically just outsourcing the hold time. You're right that the IRS won't provide complex tax advice, but they absolutely will clarify how specific rules apply to your situation. In my case, the agent confirmed which closing costs must be amortized versus expensed immediately for rental properties. They cited the relevant publication sections and it matched what I had researched, which gave me confidence to proceed with my filing.

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Harper Collins

•8M

Well I was completely wrong about this. After spending 3 hours researching refinancing costs for my rental property and getting nowhere, I reluctantly tried Claimyr (https://claimyr.com). Within 30 minutes I was talking to an actual IRS representative who walked me through exactly how to handle each type of closing cost. The agent confirmed that title insurance, recording fees, and legal fees are all deductible as ordinary expenses in the year paid, while points must be amortized over the loan term. She even directed me to the specific sections in Publication 527 that I had somehow missed in my own research. For anyone dealing with rental property tax questions, especially something specific like refinancing costs, getting direct confirmation from the IRS is incredibly valuable. I'm filing with complete confidence now.

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Kelsey Hawkins

•8M

One thing nobody's mentioned yet - make sure you keep really good records of all those closing costs! I refinanced my rental in 2023 and properly split the costs between immediate deductions and amortized costs, but then couldn't find my closing statement when doing my 2024 taxes. Nightmare trying to recreate everything and ended up having to contact the title company for duplicates. I recommend scanning everything and keeping digital copies in multiple places. Also create a spreadsheet that shows exactly how you allocated each expense and how much you're amortizing each year over the loan term. Your future self will thank you!

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Kelsey Hawkins

•8M

I don't have a specific template I can share, but it's pretty straightforward. I created columns for the expense description, total amount, whether it's deductible immediately or must be amortized, and then columns for each tax year showing how much to deduct that year. For amortized costs like points, I divide the total by the number of months in the loan term, then multiply by 12 to get the annual deduction amount. The first and last years might be partial depending on when you closed. I also include IRS publication references or notes about why I categorized each expense a certain way, which helps if you ever need to justify your decisions later.

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Charlee Coleman

•4M

Great question about refinancing costs! I went through this exact situation last year and it's definitely confusing at first. From my research and experience, you're on the right track. The $3,100 in loan origination fees and points should be amortized over the life of your new loan - so if it's a 30-year loan, you'd deduct about $103 per year ($3,100 ÷ 30 years). The remaining $4,100 in closing costs (attorney fees, title search, recording fees, etc.) can typically be deducted as ordinary rental expenses in 2024. Just make sure to review your closing statement line by line since some fees might have specific rules. One tip: if you refinanced mid-year, remember that you can only deduct the portion of the amortized costs that corresponds to the months the loan was active in 2024. So if you closed in July, you'd only deduct 6/12 of that annual $103 amount for 2024. The fact that your tax software is handling the origination fees and points correctly is a good sign - it sounds like you're set up properly!

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