Closing expenses

[Bootaxes]

My client bought a vacation rental in '09. In 09 the house was not rented so I didn't amort the closing expenses of $11k. In '10, my client purchased the house from the partner and payed off the mortgage from the 09 loan. What's the best way to handle the '09 closing expenses from a loan that was closed in '10?

[veritas]

Boo

Can you tell us something about your background? No offense is intended but how long have you been in the tax preparation business?

[Bootaxes]

Hi, may I inquire why do you ask?

[JohnH]

Because he wants to know...

[WhiteOleander]

I'm a little confused. Did he purchase the property, or did a partnership purchase it?

At any rate, it has been my understabding that purchase expenses on a property are added to the basis of the property for depreciation if it is later used in business. Amortization is no longer available.

[Burke]

My client bought a vacation rental in '09. In 09 the house was not rented so I didn't amort the closing expenses of $11k. In '10, my client purchased the house from the partner and payed off the mortgage from the 09 loan. What's the best way to handle the '09 closing expenses from a loan that was closed in '10?

I think we dealt with this in an earlier post of yours. The house/condo or whatever was not rented until 2011. Therefore, there are no deductible expenses in 2009 or 2010. Cost of house, plus closing expenses, and purchase of partner's interest, plus renovations are all capitalized and used to calculate depreciation deduction in 2011, when house was first rented.

[Snaggletooth]

Boo!!

Burke and Oleander are doing their best with information that is missing from original post.
Does not state that the original purchase and loan was in the name of a partnership. Does not state that rental began in 2011 or that the property was ever rented. Was original loan paid off with another loan by your client, or did he simply cough up enough money to buy from his co-owner plus extinguish indebtedness.

The general rule for such closing costs is they roll into basis of the property. And if there is a second loan, those costs roll into the basis of the property as well. There is the unlikely event that if the owner is an individual (and not a partnership), and this is not yet rental property but an investment, Schedule A treatment might be available to a single owner for some closing costs. Items such as points, interest, prepaid taxes. These would have to otherwise qualify

[JohnH]

When a CLIENT asks me the same question more than once, leaving out important facts with each variation, I assume that the client has an objective in mind. Usually they are changing up the information in an effort to try and get me to say something they want to hear. I can't recall that assumption ever having been incorrect.

[newbie]

Similar questions -

My client bought a vacation rental in '09. In 09 the house was not rented so I didn't amort the closing expenses of $11k. In '10, my client purchased the house from the partner and payed off the mortgage from the 09 loan. What's the best way to handle the '09 closing expenses from a loan that was closed in '10?

My client purchased a beach property w/a partner in 09. They incurred some expenses with getting it ready to rent that we took in 09 on Sched E including taxes, interest. In 2010, partner was bought out and more work was done on the house to complete the furnishings, repaint, add appliances, etc. The house is on the rental program strong in 11 and has genterated about $30k in rental income in '11. I'm preaparing their '10 taxes. So, in '10 there are about $65k worth of expenses but no income until '11. Will that send a red flag to IRS? Its all correct of course. How do you handle it when alot of expenses are incurred in one or two yrs then rental income in 3rd yr? Is it safe to take depreciation expense? If so, loss could be $90k for 2010. Thank you in advance!!

Questions are similar but doesn't seem to be begging for a particular answer. For the information provided I think you got some good advice.

When I really was a newbie I had a poster tell me I didn't belong on this board - but I hung in there - & I've learned a lot from this board, thanks to the other 99.9% that have been patient and kind enough not to ridicule - I even contribute now & then! Too bad we can't all be immediate experts. Nah - that would be too boring!

[Nashville]

Grizzled Veterans

I've learned a lot too, even though I considered myself a grizzled veteran when I joined the board. Doesn't mean I was smart though, because I continue to learn from the experience of others. This stuff still gets away from me even after several years' practice.

I never considered posts from Newbie to be from a neophyte, and it is hard to imagine someone crass enough to encourage Newbie not to post. I have, however, seen a very few whom I thought would learn more from furthering their education than from asking rather obvious questions.

I don't know what has (or has not) been implied in previous responses, but whatever your assessment, hang in there BooTax!!