Loan fees

[Gretel]

I have a special problem and don't know the answer.

Construction loan was taken to build and the loan fees and interest paid are added to basis. Completed project is rented now but final loan not in place yet. Original construction loan was extended for three months and fees were charged. Are these fees also just added to the basis or are they deductible as rental expenses?

[Snaggletooth]

GAAP Treatment

Gretel, Loan Fees are treated as Interest for GAAP purposes, and I believe the same for tax purposes, with the exception being that interest must be paid and not accrued for tax purposes.

If the interest is deductible, the loan fees are deductible as paid (i.e. amortizable over the course of the payment reduction).

If the interest is NOT deductible but instead capitalizable (such as would be the case for a building loan) the Fees in total are part of the depreciable basis just as the interest.

[ChEAr$]

Therefore the date of first rental is very important in correctly apportioning expenses.

[Gretel]

Gretel, Loan Fees are treated as Interest for GAAP purposes, and I believe the same for tax purposes, with the exception being that interest must be paid and not accrued for tax purposes.

If the interest is deductible, the loan fees are deductible as paid (i.e. amortizable over the course of the payment reduction).

If the interest is NOT deductible but instead capitalizable (such as would be the case for a building loan) the Fees in total are part of the depreciable basis just as the interest.

Thank you so much. I forgot to mention that the loan fees were not paid but added to the loan. Does this make any difference?