Are closing costs deductible on a 40-year DSCR mortgage (purchase and refi)

[Dana Powell]

Greetings, when researching online, i came across a nugget that typically deductible closing costs can only be deductible on mortgages that are 30 years or less, but I can no longer find that web page!  If there is such a rule, does it pertain to rental property or just to primary home mortgages?

Secondly, since DSCR loans are considered business loans and not conventional loans, can closing costs that are typically deductible for conventional loans be deducted for DSCR loans?

In addition, am I correct in assuming that, regardless of whether a loan is DSCR or conventional, an investor can add the closing costs that are typically added to the cost-basis of a rental property? Thanks in advance!

[Michael Plaks]

@Dana Powell

Looking at random posts and blogs is dangerous: too much crap out there, like some clown mentioning that loans under 30 years are treated differently from longer ones. It's actually good that you cannot find this garbage anymore.

No simple rule exists really, however the length of the loan and the type of the loan do not matter. Closing costs are treated in 5 different ways:

- some are immediately deductible, like current property taxes and insurance premiums

- some are added to the basis of the property and depreciated with it, like title insurance and inspections

- some are treated as "loan costs", like origination fees, points and appraisals. They are deducted ("amortized") evenly over the length of the loan

- some are not deductible at all, like past due taxes unpaid by the seller

- some are deductible at a later point, like escrow deposits

Unfortunately I'm not aware of an accurate table that you could use to figure out what goes where.