Handling points on sale of rental property

[FEDUKE404]

In the past a client purchased business (residential) rental property, and at that time from the total purchase cost the building, land, and amortized loan fees were separated. Property was sold in late 2007.

I know the "unused" loan fees can be taken in full in the year of sale.

What is the best/easiest way to do this? Show a Form 4797 "sale" of the loan fees for zero, or just adjust the basis/selling price of the asset to include the points, or perhaps list a separate line item entry on Sch E along the line of "recovered loan costs" or something similar. I can't in clear conscience consider the "points" a capital asset, can I??

The Sch E already shows the 2007 allowable depreciation and amortized costs prior to the sale, and those amounts have been factored in to the Form 4797 disposition entries.

I'm sure there is a simple answer.......my (remaining) brain is just about pickled these days. For someone who deals with this type problem all of the time, I feel sure there is a "simple" answer.

Thanks for your help!

FE

[JG EA]

I would add to basis.

[LMathey]

Were there expenses relating to this rental property? If yes, I would show as unamortized loan fees expensed due to sale of property.

[FEDUKE404]

Expensing remainder seems appropriate

Were there expenses relating to this rental property? If yes, I would show as unamortized loan fees expensed due to sale of property.

There were indeed 2007 Sch E expenses (sold in Dec of 2007). The original basis had been reduced by the cost of the land and the cost of the loan, with property depreciated at 27.5 years and money amortized at 15.0 years (length of loan).

The best I came up with is to show the remaining unused loan fees (reduced by the "allowable" 2007 amount prior to sale) as expensed using a separate entry on line 18 of Sch E. The Form 4797 shows only the sale of the building/land and accounts for all prior depreciation.

I think I can sleep OK with that approach.

Thanks again!

FE

[Roland Slugg]

Deduct

Deduct the full amount of unamortized points on Schedule E in the year of sale. On the line where you would normally list and deduct one year's amortization, enter the entire unamortized balance instead. You would do the same thing if the loan were paid off or refinanced.