How to book lender credits on a refinance

[Nick E.]

Hi, I do my own bookkeeping and am trying to figure out the proper way to book a refinance on an investment property.

The refinance was a zero-cost refi with a huge credit of -0.75 points (on a $1.6M loan). This covered all closing costs, prepaid interest, initial escrow, AND left me with a $5k check after close.

Normally when you pay points you amortize them over the life of the loan, but I'm having trouble finding information on how to book negative points. Do lender credits get treated the same way? In other words, debit the lender credit to a "Loan Fees" Non-Current Asset account? Doing this would result in a negative balance, which would imply I have to amortize this as income (or deduct against interest expense) over the life of the loan.

Any CPAs out there that know the "right" thing to do here? Thanks in advance! :)

[Ashish Acharya]

Originally posted by @Nick E.:

Hi, I do my own bookkeeping and am trying to figure out the proper way to book a refinance on an investment property.

The refinance was a zero-cost refi with a huge credit of -0.75 points (on a $1.6M loan). This covered all closing costs, prepaid interest, initial escrow, AND left me with a $5k check after close.

Normally when you pay points you amortize them over the life of the loan, but I'm having trouble finding information on how to book negative points. Do lender credits get treated the same way? In other words, debit the lender credit to a "Loan Fees" Non-Current Asset account? Doing this would result in a negative balance, which would imply I have to amortize this as income (or deduct against interest expense) over the life of the loan.

Any CPAs out there that know the "right" thing to do here? Thanks in advance! :)

You probably have to pick up income right away because you are most likely a cash-basis taxpayer. The amount is not material enough to worry about this too much. Most conservative way - pick up as other income. We can make this as complicated as we want but it is not worth it.