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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12493
Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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This is a rental property: Bought property 4/1/2013 rental

Resolved Question:

This is a rental property:
Bought property 4/1/2013 rental leases starts 9/1/2013
I paid taxes 1st quarter covering period 4/1, 5/1 and 6/1 .
Quarter taxes $3500.00 do I add that quarter to basis as well.
2nd I borrowed 150,000 from my line of equity to pay for renovation
Interest from 4/1 to 8/31/2013 is added to basis. ?
Interest from 9/1/2013 once tenants move in -12/31/2013 is reported on line 13
Schedule E?
3rd I borrowed 40,000 from my visa. To pay for renovation. Incurred 3% transaction fee meaning $1200.00 Fee for borrowing money beside introductory 1.99 interest rate.
Transaction Fee $1200 I add to BASIS or Can deduct on SCHEDULE E. Line 13 Bank Fees?
Interest on credit card from 4/1/-8/31/2013 I add to basis?
Remainder interest from Credit CARD. 9/1/2013-12/31/2013 I subtract from Line 13 Schedule E.
Submitted: 11 months ago.
Category: Tax
Expert:  Megan C replied 11 months ago.

MyVirtualCPA :

Thank you for your question, and thanks for using JustAnswer.com

MyVirtualCPA :

How are you today?

MyVirtualCPA :

I think you have the basic gist of how it works when you purchase a rental property. All of the costs that are incurred prior to the asset being placed into service are rolled into the basis of the property...so, anything pre- September 1 is basis, anything after that is expense

MyVirtualCPA :

So the quarter taxes, plus 2 months of the next quarters taxes, are included in the basis of the property

MyVirtualCPA :

The interest on your home equity loan is rolled into basis from April through end of August, as is the interest on your credit card and the transaction fee you incurred

MyVirtualCPA :

Any interest incurred after 9/1 is expensed on schedule E

MyVirtualCPA :

Do you have any further questions?

MyVirtualCPA :

May I ask if I have provided you with Excellent Service today?

Customer:

Processing fee $1200.00 I incurred on VISA. Besides Monthly interest. I add to BASIS. Not Depreciate. Who lump sum.


Rental leases on this property begin 9/1/2013.


Visa Interest 1.99 % on $40,000, I subtract on Schedule E. Under line 12 or is line 13 other interest. Do I have to attach sheet other explain other interest.

MyVirtualCPA :

You add the processing fee to your basis, and your credit card interest would be line 13. You can put "visa" on the line, and if you have more than one source of other interest, attach a schedule showing where the interest was paid.

MyVirtualCPA :

Do you have any further questions?

MyVirtualCPA :

If you have no further questions, please let me know if I have provided you with excellent service today

Expert:  Megan C replied 11 months ago.
Emma,

I believe we had technical difficulties with our live chat session. Please let me know if I have not adequately addressed your concerns by following up with me below. If I have answered your question, please rate as "excellent" so that I may receive credit for assisting you today. Thanks again for being a valued JA customer
Customer: replied 11 months ago.

 


I own 3 more properties. Had number of closing.


In the past. I would not depreciate points. I simple added them to basis.


Rolled 7-8 closing fees points into closing. Less Taxes and Insurance.


Is this a big problem.


Fixing expenses: windows, doors, kitchens, granites, toilets, I would add to basis.


Example additional $10,000 a year. For last 5 years. Major renovation.


Is this a big problem. I will be listing this property to sell 2014.

Expert:  Megan C replied 11 months ago.
Thank you for your follow up. I don't see a problem with what you've done. You're fine.

Please let me know if I can be of further assistance. If not please rate as excellent so that I may receive credit for assisting today. Thanks again.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12493
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 6 other Tax Specialists are ready to help you
Customer: replied 11 months ago.

 


Could you specify exactly. What fixed cost I need to capitalize.


Example roof, I understand.


Doors, toilets, kitchen sink, kitchen cabinets, light fixtures.


Please give me a year table is in 5, 7, or 10 years. Depreciation. Confused.

Expert:  Megan C replied 11 months ago.
Emma all the fixtures you place in the house are added to the basis and depreciated at 27.5 years. Appliances are depreciated over 5 years.

Is there anything else I can assist you with? If not, please rate as excellent so that I may receive credit for assisting you today. Thanks again.
Customer: replied 11 months ago.

 


Last question promise. Rental property.


I paid off mortgage on a building. It was a small mortgage. For 10 years I Deducted mortgage interest. At the end of 10 years. Paid off the mortgage.


Few years later. Needed money refinance the house again?


Can I deduct mortgage interest? Depreciate Points Basis, etc.


Have I made a mistake, I deducted mortgage interest for the 2nd time.


Plus added points to basis. Was that wrong? This is investment property. Money was used to renovate the building. Money was spend on construction.

Expert:  Megan C replied 11 months ago.
Thank you for your follow up. Yes, you can deduct mortgage interest on your refinanced mortgage, as you have used the money to improve the property. You would handle the loan same as you handled the other mortgage. You did NOT make a mistake deducting the interest on the loan the second time. You handled it correctly.

Please let me know if you need anything additional. If not, please rate as "excellent" so that I may receive credit for assisting you today.
Customer: replied 11 months ago.

 


Example I refinance took cash out example 100,00k


$40,000 used towards building improvements.


$60,000 used as downpayment for another property. Property B.


I can deduct interest on $40,000 only?? For property A.


In the past I deducted interest on all $100,000 against property A. Income. on


schedule A.


Was it a mistake?

Expert:  Megan C replied 11 months ago.
Thank you for your follow up. You would deduct the interest for property A over the life of the property, as it was used towards building improvements until A was in service, then you deduct interest on schedule E. For property B you deduct the interest over the life of the property until it is in service, then you deduct as current expense on schedule E as well.

You should not be deducting this interest on schedule A, but if you did there's no reason to amend your return because your taxable income would remain the same.

Please let me know if you need anything additional. If not, please rate as "excellent' so that I may receice credit for assisting you today.
Customer: replied 11 months ago.

 


My CPA, friend tells me I can’t deduct interest once I paid off the loan.


If I refinance again for the 2nd time, can’t deduct mortgage interest on schedule E.


I am confused. You are telling it’s o.k.


I refinance took out $100,000.


$40,000 used for construction of the building. That $40,000 for construction I can deduct.


If I used any amount for purchase of car or personal items. Obviously, I can’t deduct


that mortgage interest.


For the past 15 years. I renovated this rental property extensively.


I need to keep each receipt. My contractor has to sign off on all their work?


Impossible I had so many little job, ETC..


I am nervous, because I will be listing property for SALE.


Afraid of audit. I will incur gain.

Expert:  Megan C replied 11 months ago.
Thank you for your follow up.

Whenever you borrow to improve the property, you can deduct that interest. Don't be concerned about an audit, just keep excellent records. Yes, you would need to keep receipts for your expenses.

You can read all about the expenses that are allowed here: http://www.irs.gov/publications/p527/

ou can deduct mortgage interest you pay on your rental property. When you refinance a rental property for more than the previous outstanding balance, the portion of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. Chapter 4 of Publication 535 explains mortgage interest in detail.

The portion of the loan proceeds used for rental use is always deductible.

Please let me know if you need anything additional. If not, please rate my reponse as "excellent" so that I may receive credit for assisting you today.
Customer: replied 11 months ago.

 


Meaning my original loan $160,000 I paid off .


If I refinance the same property take cash out $200,000.


I can deduct interest on only $160,000? and all funds need to be spend on


renovation of the property?


Not personal USE.

Expert:  Megan C replied 11 months ago.
Thanks for your follow up. You can deduct the entire about of the refinanced interest since the funds were used for rental use.

Thanks again for using JustAnswer.com and have a great day.
Customer: replied 11 months ago.

 


I can deduct interest on $200,000 greater than original loan.


Since funds were used for improvement of the building.


I can’t use any of the funds for personal use?

Expert:  Megan C replied 11 months ago.
That is correct - you can deduct interest on the $200,000 since funds were used for improvements.

No, you cannot use funds for personal use.

Thanks again for your follow up. Please let me know if I can assist further.
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12493
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 6 other Tax Specialists are ready to help you
Customer: replied 11 months ago.

 


Last and final question.


I can deduct unused points $ on schedule E. Line 13?


Other interest. Where do I write off Undeprecitaed points $.


Original points $5600.00


10 Year into loan I refinance. Incurred other point fee example $4500.00


New points I will depreciate. Old points fee deduct on Schedule E. Line 13 or where.


Or make an addendum. Please be specific.

Expert:  Megan C replied 11 months ago.
Thank you for your follow up. You will deduct your undepreciated points on line 13, other interest and then you will amortize the new points over the course of the loan.

Please let me know if you need anything additional. If not, please rate as excellent so that I may receive credit for continued assistance.
Expert:  Megan C replied 11 months ago.
Thanks for allowing me the opportunity to help you. Please let me know if I can be of any further assistance to you in this matter. I really enjoyed working with you – please feel free to request me again when you come back to ask another question. Simply enter "MyVirtualCPA" in the subject of your question Thanks again for being a JustAnswer customer

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