Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Amortizing Loan Costs

Posted by taxguru on February 15, 2008

Q:

Subject: Amortizing the cost of acquiring a mortgage

Hello Kerry:

Thank you for providing such wonderful information.

My question is rather simple.  I acquired rental property in 2007 and want to amortize the loan costs.  I understand how to calculate the amortization and that it is reported on line 18 (“Other”) of schedule E.  However, since I acquired the property (and mortgage)in 2007 I need to file Form 4562.  The amortization is done in Part VI of the form and everything is fairly straightforward except for 2 things. 
1) What do I list in column (d) – “Code section”?

I’ve searched the IRS site and the intranet high and low but can’t seem to find any information on this.  Form 4562 instructions list some codes, am I to use one of them?  The only one that seems to make sense is Section 197 – Certain intangibles.

2) If I put “Property A loan origination costs” as a description, can I use a 5 yr amortization like you suggest?  If I use code 197, am I stuck with a 15 yr term?

Thank you.

A:

When I enter a new loan costs item into the Lacerte depreciation schedule, I always choose Code Section 461 – Points as the appropriate amortization code section and manually enter the number of years that is appropriate for that particular item.  I’ve been doing that for over 20 years in Lacerte and IRS has never once had any problems with it; so that should work for you.

Kerry Kerstetter

 

 

 

 

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