Deducting my $800 appraisal fee (X2) as an expense for the year

Tax, SDIRAs & Cost Segregation
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Deducting my $800 appraisal fee (X2) as an expense for the year

Andrey Y.
Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes

I was just doing my taxes and I realized I had paid for two appraisals ($800 a pop) for two refi's in 2019. Of note, I paid them with a credit card and they didn't appear on the settlement statement at the end.

If I can deduct this as a rental expense, where (what line item) in my taxes should I do so?

Thanks and have a great one and stay safe!

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Allan Smith
Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
6y

The tax owed going up is very odd. It might be time for a real estate cpa to do your taxes. Only maybe $200 more and they have a lot more knowledge and save you the time of where does appraisal exp go. 

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  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    bumpp

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y
    Originally posted by @Andrey Y.:

    I was just doing my taxes and I realized I had paid for two appraisals ($800 a pop) for two refi's in 2019. Of note, I paid them with a credit card and they didn't appear on the settlement statement at the end.

    If I can deduct this as a rental expense, where (what line item) in my taxes should I do so?

    Thanks and have a great one and stay safe!

     $800! daaang. like multi unit? Ours are like $200 for sfh. 

    Put it under mileage lol not sure but it would for sure be coming off.  legitimate expense. 

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Kirk R.:
    Originally posted by @Andrey Y.:

    I was just doing my taxes and I realized I had paid for two appraisals ($800 a pop) for two refi's in 2019. Of note, I paid them with a credit card and they didn't appear on the settlement statement at the end.

    If I can deduct this as a rental expense, where (what line item) in my taxes should I do so?

    Thanks and have a great one and stay safe!

     $800! daaang. like multi unit? Ours are like $200 for sfh. 

    Put it under mileage lol not sure but it would for sure be coming off.  legitimate expense. 

     Yea, those are the crazy prices in Hawaii. Mileage? Seems odd.. ;) One of them I actually went with another lender towards the end but either way they were expenses out of my pocket for two difference properties. Still, not sure exactly where to put it? And since it was a refi and not an initial purchase, definitely these amounts are not being expensed or amortized anywhere on my taxes.

    0Reply
  • Kirk R.
    Peoria, IL · Member since 2013 · 967 posts · 383 votes
    6y
    Originally posted by @Andrey Y.:
    Originally posted by @Kirk R.:
    Originally posted by @Andrey Y.:

    I was just doing my taxes and I realized I had paid for two appraisals ($800 a pop) for two refi's in 2019. Of note, I paid them with a credit card and they didn't appear on the settlement statement at the end.

    If I can deduct this as a rental expense, where (what line item) in my taxes should I do so?

    Thanks and have a great one and stay safe!

     $800! daaang. like multi unit? Ours are like $200 for sfh. 

    Put it under mileage lol not sure but it would for sure be coming off.  legitimate expense. 

     Yea, those are the crazy prices in Hawaii. Mileage? Seems odd.. ;) One of them I actually went with another lender towards the end but either way they were expenses out of my pocket for two difference properties. Still, not sure exactly where to put it? And since it was a refi and not an initial purchase, definitely these amounts are not being expensed or amortized anywhere on my taxes.

    pest control or cleaning supplies? i would just get it in there.  if yiu get audited just plain it.   now you got me curious where that really should go.   I would put it under legal & professional same as where my tax preparer money is. 

    0Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Kirk R.:
    Originally posted by @Andrey Y.:
    Originally posted by @Kirk R.:
    Originally posted by @Andrey Y.:

    I was just doing my taxes and I realized I had paid for two appraisals ($800 a pop) for two refi's in 2019. Of note, I paid them with a credit card and they didn't appear on the settlement statement at the end.

    If I can deduct this as a rental expense, where (what line item) in my taxes should I do so?

    Thanks and have a great one and stay safe!

     $800! daaang. like multi unit? Ours are like $200 for sfh. 

    Put it under mileage lol not sure but it would for sure be coming off.  legitimate expense. 

     Yea, those are the crazy prices in Hawaii. Mileage? Seems odd.. ;) One of them I actually went with another lender towards the end but either way they were expenses out of my pocket for two difference properties. Still, not sure exactly where to put it? And since it was a refi and not an initial purchase, definitely these amounts are not being expensed or amortized anywhere on my taxes.

    pest control or cleaning supplies? i would just get it in there.  if yiu get audited just plain it.   now you got me curious where that really should go.   I would put it under legal & professional same as where my tax preparer money is. 

     The other thing is, sometime when I add an expense on a rental property, the amount I owe the IRS goes UP! {I am using H&R Block Premium desktop version} I mean, I do have carryover losses and carryover AMT from prior years, but how can increased rental EXPENSES worsen tax benefits? I would think it would either do nothing (too much losses already and I am not a real estate professional), OR decrease tax owed. So, this is rather bewildering to me.

    0Reply
  • Allan Smith
    Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    The tax owed going up is very odd. It might be time for a real estate cpa to do your taxes. Only maybe $200 more and they have a lot more knowledge and save you the time of where does appraisal exp go. 

    2Reply
  • Stephanie D.
    Real Estate Agent · MD · Member since 2017 · 39 posts · 37 votes
    6y

    Not a tax pro but I believe you have to capitalize it over the 27.5 year period or until you refi again. 

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    6y

    All of your loan related costs get amortized over the life of the loan. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
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    2Reply
  • Eamonn McElroy
    Accountant · Atlanta, GA · Member since 2015 · 1k+ posts · 1k+ votes
    6y

    Debt issuance costs should be capitalized as noted by Natalie.

    Most of the time they're amortized straight-line over the life of the loan, however if above the de minimis amount they're treated as OID.

    1Reply
  • Andrey Y.
    OP
    Specialist · Honolulu, HI · Member since 2014 · 1k+ posts · 1k+ votes
    6y
    Originally posted by @Natalie Kolodij:

    All of your loan related costs get amortized over the life of the loan. 

    I don't really see how this would work. As an example, the properties are already on a depreciation schedule (using the initial PP + other things). So, I am performing one or more cashout refis after the initial purchase event. I don't know where in the taxes (edit depreciating schedule, or put as an expense somewhere?) it would go.

    Because loan related costs from the initial purchase (which I already have factored in), are different from loan related costs from future cash out refinances (which are different loans).

    I mean, does the depreciation schedule get reset or depreciation just becomes higher?

    Conceptually I understand what you are saying, I just don't know how to input it into the tax software. Seems like it should be fairly straightforward. Thanks for your input.

    0Reply
  • Oleg Kio
    Rental Property Investor · Augusta, GA · Member since 2013 · 14 posts · 13 votes
    6y

    ​Andrey, as @Natalie Kolodij & @Eamonn McElroy  mentioned above, your refi costs (which include appraisal fees) have to be amortized over the life of the loan. If you loan is for 30 years, and loan costs were $3,000 total, you would amortize it over 30 years, writing off $100 per year.

    Amortization is not the same as depreciation but they work in similar ways, spreading the cost over multiple years. Depreciation is for tangible items, amortization is for intangible.

    If you're using tax software, you just add a new intangible asset, it will ask you what it is, how many years the loan is for, etc., and it should take care of the rest, writing off correct amount each year. If you refinance again in the future, you tell the software that you "sold" this intangible asset (using the date of the new refi) and it should write off the remaining amount.

    Looks like there is another post about it on BP - https://www.biggerpockets.com/member-blogs/237/1104-amortizing-loan-costs

    This does start "getting into the weeds" so it's probably worth getting a tax pro involved (or at least get a consultation/review.)

    As for your other question, why the tax that you owe goes up when you add more expenses in your tax software... It's hard to say without looking at the actual tax form. It could be that with lower expenses you qualified for some tax deduction or credit but with higher expenses you no longer qualify. You can print out (or save as PDF) the actual forms before and after you make the changes and compare them side by side. Compare your 1040, your Schedule E, etc..

    2Reply
  • Michael PlaksPro Member
    Tax Accountant / Enrolled Agent · Houston, TX · Member since 2014 · 5k+ posts · 6k+ votes
    6y

    @Andrew Yu

    3 Russians on the same thread... Interesting...

    As @Oleg Kio mentioned, simultaneously with setting up the costs of the new loan (appraisal+title+points+whatever else) for amortization, you should dispose the old loan costs, assuming they were set up for amortization years back. If your original loan costs were $3,000 and you amortized $500 of it by now, you deduct the rest of it, $2,500, as "unamortized loan costs" on line 19 of Sch E.

    I'll throw a wrench in your situation though. What did you do with the cash from refi? If you did not spend it on improving this property, it is not deductible on its Sch E. Example: you refi-ed a $100k loan (remaining, not original, principal) into a $150k loan and you spent the $50k to pay off your student loan. Only 2/3 of the interest on the new loan is deductible.

    As to why your taxes went up after adding expenses - beats me. As Oleg suggested, print the before and after and compare every form side-by-side.

    1Reply
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