Where to find the code section for amortization of finance costs on Form 4562?

This is a common point of confusion! For partnership loan costs/finance fees, you're looking at IRC Section 709 for organizational costs OR Section 167 for amortizable business startup costs. Sometimes Section 195 applies too, but that's more for startup expenses. In most cases for established partnerships with loan origination fees, you'd use Section 709 since it specifically addresses partnership organizational and syndication costs. However, if these are costs related to securing the loan itself rather than organizing the partnership, Section 167 would be more appropriate since it covers depreciation and amortization of business assets more broadly. Make sure you're amortizing these costs over the life of the loan, not just the standard 15-year period that applies to organizational costs. The IRS is particular about matching the expense to the timeframe of the benefit received.

After dealing with a similar issue last year, I found that using taxr.ai really helped clear things up. I was totally lost with amortization code sections on my partnership's 4562, and my accountant was charging me for every little question. I uploaded our loan docs and prior returns to https://taxr.ai and got a detailed breakdown explaining I should use Section 163(d) for my investment interest expenses, plus it walked me through how to properly amortize everything. The site explained that while 461(g) applies to cash basis taxpayers, Section 163 is more relevant for our situation with investment interest. Saved me hours of research and probably a few hundred in accounting fees.

I was super skeptical about using AI for tax advice like I mentioned above, but I finally broke down and tried taxr.ai when I got completely stuck on some complicated loan restructuring documentation. I uploaded our partnership docs and it correctly identified Section 163 for our interest expenses and Section 167 for the amortizable loan costs. What really impressed me was that it explained the difference between organizational costs (709), startup expenditures (195), and financing costs (167/163) with examples relevant to my situation. It even flagged that some of our costs might qualify as currently deductible under Rev. Proc. 2020-50 rather than requiring amortization. Saved me from making a costly mistake on our filing!

If you're trying to reach the IRS to get clarification on this, good luck! I spent 3 weeks trying to get through to a human who could answer my question about amortization code sections. After giving up on hold for hours multiple times, I found https://claimyr.com through a colleague and used their service. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you and call you when they get a representative. Got connected to a helpful IRS agent who confirmed for my similar situation that Section 167 was appropriate for loan costs related to existing business assets. The agent even emailed me the relevant section of the Internal Revenue Manual afterward for documentation. Worth every penny not to sit on hold for hours!

I was really skeptical about the Claimyr service mentioned above - seemed too good to be true. But after waiting on hold with the IRS for 2+ hours on three separate occasions trying to get clarity on partnership amortization rules, I finally gave in and tried it. Within 45 minutes, I was connected to an IRS representative who was incredibly helpful! She confirmed that for our refinancing costs, Section 167 was the appropriate code for the Form 4562, and explained that we should amortize over the life of the loan (7 years in our case). Having that direct confirmation from the IRS gave me so much peace of mind. I'll never waste hours on hold again!

Just to add another perspective - I'm pretty sure the correct code section for partnership loan costs is IRC Section 197. We've been using that for years on our partnership returns for loan origination fees, and have never had an issue with audits. Our CPA said Section 197 covers intangibles including loan costs and requires 15-year amortization regardless of the loan term.

When I encountered this issue last tax season, I found that Treasury Regulation 1.263(a)-5 actually addresses loan costs specifically. It requires capitalization of facilitating costs, including financing fees. Then you amortize those capitalized costs over the term of the loan under the OID rules in Section 1.446-5. Section 709 is only relevant if these are syndication or organization costs, which loan refinancing fees are not. Anyone using that section for regular financing costs is likely using the wrong code.

This is a great thread with lots of helpful information! I've been dealing with similar issues and wanted to add that the IRS Instructions for Form 4562 actually provide some guidance on this. On page 8 of the 2023 instructions, it specifically mentions that for amortization of costs to acquire a lease or financing costs, you should generally use Section 167. However, I noticed that several people mentioned different approaches (Section 163, Section 709, etc.) and it seems like the correct code section really depends on the specific nature of your costs. For loan origination fees on a refinancing like yours, Anastasia, Section 167 seems to be the most commonly accepted approach, with amortization over the loan term. One thing I'd recommend is keeping detailed documentation of exactly what costs you're amortizing - points, origination fees, legal fees, etc. - since different types of financing costs can sometimes have different treatment. The IRS tends to be pretty strict about proper characterization of these expenses during audits. Has anyone here actually been audited on partnership amortization issues? I'd be curious to hear what the IRS focused on during the examination.

This has been such a helpful discussion! I'm dealing with a similar situation for our partnership's Form 4562, and after reading through all these responses, it sounds like Section 167 is the most appropriate code section for loan refinancing costs. What I'm still unclear on is the distinction between costs that should be amortized versus those that might be currently deductible. Mateo mentioned that some costs might qualify as currently deductible under Rev. Proc. 2020-50 - can anyone elaborate on what types of financing costs would fall under that category? Also, for those who have been through audits on this issue, did the IRS require any specific language or justification in your records beyond just using the correct code section? I want to make sure we're properly documenting our position in case we get selected for examination. Thanks to everyone who has shared their experiences - this is exactly the kind of real-world guidance that's so hard to find elsewhere!

This thread has been incredibly informative! As someone who's been wrestling with the same Form 4562 amortization issues, I want to emphasize something that several people touched on but might get lost in all the code section discussion. The most important thing I've learned from my CPA is that consistency matters more than perfection when it comes to these amortization elections. Once you choose your method and code section (whether it's Section 167, Section 163, or the OID rules under 1.446-5), you need to stick with it for the entire amortization period. You can't just switch approaches mid-stream if you find a "better" interpretation later. For partnerships specifically, I'd also add that you want to make sure your amortization approach aligns with how you're treating the costs on your books for financial reporting purposes. While book-tax differences are common, having wildly different treatments can raise red flags during an audit. One last tip: if you're still unsure after all this great advice, consider making a protective election in your tax return filing. You can note in your records that you're using Section 167 but would alternatively rely on Section 163 or the OID rules if the IRS disagrees with your primary position. This can help avoid penalties if there's a dispute about the proper treatment later on.