Basis increase and depreciation

[taxgirl]

If a t/p refinances their rental resulting in an increase to basis, do you set up the increase as it's own depreciable asset? or change the basis of the property in the year it changed?

[Jiggers]

If a t/p refinances their rental resulting in an increase to basis, do you set up the increase as it's own depreciable asset? or change the basis of the property in the year it changed?

Just refinancing a rental to get cash out doesn't increase the basis.

[Golden Rocket]

Loan Fees

"Adding to the basis" may result from a misconception about Loan Fees. Fees may add to the basis on an original loan but not a refinance.

Jiggers is right - basis is not increased.

However, Loan Fees may be deductible as amortization as principle is retired over the course of the loan. But this is to the extent the loan was for a business purpose. If personal, this is a cost that is simply not deductible anywhere at any time.

[taxgirl]

Once again, saved by the knowledge of my fellow practioner, thank you.

[taxea]

the portion of the loan proceeds used for improvements would result in depreciation for the improvement. What were the funds used for?

[TAX4US]

Lets go back to the original question. Assume the proceeds lets say 10k were use to improve existing structure. Do you add this to old basis or start new dep on the improvement. I know that we should look closely at the trail of $. spent and on what to possibly component the improvement.

[Jiggers]

Lets go back to the original question. Assume the proceeds lets say 10k were use to improve existing structure. Do you add this to old basis or start new dep on the improvement. I know that we should look closely at the trail of $. spent and on what to possibly component the improvement.

Depends!

I would start depreciation on the improvement and not add it to the original basis.