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Per IRS Publication 527 Residential Rental Property, on page 4:

Points

The term “points” is often used to describe some of the charges paid, or treated as paid, by a borrower to take out a loan or a mortgage. These charges are also called loan origination fees, maximum loan charges, or premium charges. Any of these charges (points) that are solely for the use of money are interest. Because points are prepaid interest, you generally can’t deduct the full amount in the year paid, but must deduct the interest over the term of the loan.

Note. Review this section of the publication for details on how to calculate the points you can deduct on your Schedule E (Form 1040) Supplemental Income and Loss. This would need to be manually calculated, per the instructions, and then entered into the TaxAct program as follows. If you are instead using the straight-line method to amortize the points over the life of the loan, see Straight-Line Amortization, later.

Original Issue Discount (de minimis) or Constant-Yield Method

The points allowable each year would be included with the mortgage interest expense on Schedule E, Line 12.

To enter the points into the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Rent or Royalty Income in the Federal Quick Q&A Topics menu to expand, then click Real estate rental income.
  3. Click + Add Schedule E, Pg 1 to create a new copy of the form or click Edit to review a form already created.
  4. Continue with the interview process to enter all of the appropriate information.
  5. On the screen titled Rental Income - Expenses, click Yes.
  6. On the screen titled Rental Income - Mortgage Interest Expense, enter the Mortgage interest deductible amount, then click Continue.

Note. If the mortgage interest or points were not paid to a financial institution or you did not receive a Form 1098 Mortgage Interest Statement, report the deductible portion on the screen titled Rental Income - Other Interest Expense as Other interest.

Straight-Line Amortization

If you are instead using the straight-line method to amortize the points over the life of the loan, this is reported on Schedule E, Line 19.

To enter the amortized points into the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Rent or Royalty Income in the Federal Quick Q&A Topics menu to expand, then click Real estate rental income.
  3. Click + Add Schedule E, Pg 1 to create a new copy of the form or click Edit to review a form already created.
  4. Continue with the interview process to enter all of the appropriate information.
  5. On the screen titled Rental Income - Amortization, click Yes to proceed with the interview questions for you to enter or review the appropriate information.

Note. Use Code Section Number 26 U.S. Code § 461 - General rule for taxable year of deduction for the amortization of points.

Mortgage Ending Early

If you again refinance the loan and are able to deduct the remaining points from the first loan in the current year, below is how to enter that in the TaxAct program. See "Mortgage ending early" on page 8 of IRS Publication 936 Home Mortgage Interest Deduction to determine whether you can deduct the remaining points in the year of refinance or if you must deduct the remaining balance over the term of the new loan.

To enter the deduction of remaining points on a refinanced loan:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Rent or Royalty Income in the Federal Quick Q&A Topics menu to expand, then click Real estate rental income.
  3. Click + Add Schedule E, Pg 1 to create a new copy of the form or click Edit to review a form already created.
  4. Continue with the interview process to enter all of the appropriate information.
  5. On the screen titled Rental Income - Amortization, click Yes.
  6. On the screen titled Amortization - Prior Amortization, enter the date of the refinance as the Date sold, then click Continue.
  7. On the screen titled Asset Sale - Gain or Loss, click Modify, select any of the options other than Form 4797 to prevent the amount from flowing to Form 4797 Sales of Business Property (which in this situation you do not need it to), then click Continue.

Now, you will need to enter the expense of refinancing the amortization into your return. The description and amount will flow to Line 19 of Federal Schedule E and if there are multiple "Other Expenses," the total will be reflected in the total on Line 19. The description and amount will appear on the attached statement that prints (and is electronically filed) with the return.

To manually enter that expense on Federal Schedule E:

  1. From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
  2. Click Rent or Royalty Income in the Federal Quick Q&A Topics menu to expand, then click Real estate rental income.
  3. Click + Add Schedule E, Pg 1 to create a new copy of the form or click Edit to review a form already created.
  4. Continue with the interview process to enter all of the appropriate information.
  5. On the screen titled Rental Income - Expenses, click Yes.
  6. On the screen titled Rental Income - Amortization, click Yes.
  7. On the screen titled Rental Income - Other Expenses, enter "Amortization Refinanced" as a Description, the Amount remaining to be deducted, then click Continue.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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