Negative loan origination fee

[Margaret CPA in OH]

First time I've seen this - client refinanced property, 45% rental, 55% personal residence. On the settlement sheet, line 802 is "Your credit or charge (points) for specific interest rate chosen ($3124.55)" The origination charge, line 801, is $1455.00. So line 803, Your adjusted origination charges, is ($1669.55). Now how is that amortized (the rental portion) over the life of this loan?

My brain hurts already...

[Margaret CPA in OH]

Anyone out there with experience with this? Comments? Jokes?

[Medlin Software, Dennis]

No experience at all...

My WAG:

Since it was negative, there was nothing "prepaid", so nothing to amortize as the increased interest rate handles it.

[cred65]

Anyone out there with experience with this? Comments? Jokes?

What bank is it? Maybe I'll apply.

[Margaret CPA in OH]

Thanks for the input. I was wondering if I had to add in the amount annually instead of amortizing as a deduction :wacko:

[Medlin Software, Dennis]

A quick search showed me these are usually for those with little cash on hand. By "buying up" the interest rate, the amount is typically credited against closing costs, not paid out in cash. My head started to spin as to what sort of reply to offer, until it hit me, the amort is for "prepaid" interest, one might assume to spread the actual interest over the life of the loan instead of allowing a big year one deduction if some of the interest was prepaid. Since a negative point situation is not prepaying interest, I am guessing it can be ignored.

[Pacun]

Reduce basis by this amount.

[Margaret CPA in OH]

Thanks, Medlin and Pacun, for unsticking my brain! I can see clearly now...