Are Loan Origination Fees Tax-Deductible On Rental Property? | The Real Write-Off Rules

Yes, they can reduce rental income, yet most borrowers must spread them across the loan term rather than taking the full amount in one year.

Loan origination fees feel like a punch in the wallet. You sign, you close, and the lender grabs a chunk upfront. If you’re buying or refinancing a rental, the next thought is simple: can this lower the tax bill?

Most of the time, the answer is “yes, but not all at once.” The IRS tends to treat origination fees and points as prepaid interest tied to the loan. That usually means you claim a slice each year while the loan is outstanding.

This guide breaks it down in plain terms: what counts as an origination fee, where it goes on your return, how to calculate the yearly amount, and what changes when you refinance or pay the loan off early.

Are Loan Origination Fees Tax-Deductible On Rental Property? What Counts And What Doesn’t

Lenders label fees in messy ways. On a Closing Disclosure (or similar statement), you might see “loan origination fee,” “points,” “discount points,” “loan discount,” or “maximum loan charges.” Some of these are basically prepaid interest. Others are admin charges that may fall into a different bucket.

For rental property taxes, the first split to understand is this:

• Costs paid to buy the property tend to become part of your basis (the amount you depreciate over time).
• Costs paid to get the loan are not part of the property’s basis and often get recovered across the loan term instead.

The IRS explains this distinction in its basis rules: settlement fees tied to buying property can be part of basis, while fees tied to getting a loan are treated differently. See IRS Publication 551 on basis and settlement costs.

How The IRS Describes “Points” And Why That Matters

Points are a form of prepaid interest. They’re paid to get a loan, often to lower the interest rate. The IRS uses that framing in its explanation of mortgage points: see IRS Topic No. 504 on home mortgage points. A rental is not your main home, yet the “prepaid interest” idea still helps you classify what you’re looking at on the closing paperwork.

If your origination fee is really points in disguise, the usual treatment is amortization (spreading it out) over the life of the loan.

Why Many Rental Borrowers Don’t Get A Same-Year Write-Off

People mix up rental loans with owner-occupied mortgages. With a main home, some points can be deducted in the year paid if you meet specific tests. Rental property rules tend to be stricter: you commonly recover these financing charges over time because the loan benefits multiple years of rental income.

That’s the core reason you’ll see “spread it out” as the default answer for rental origination fees.

Where The Deduction Usually Lands On Your Tax Return

For most individual rental owners, the yearly slice of amortized points/origination fees gets folded into your mortgage interest expense on Schedule E.

The IRS Schedule E instructions and the rental property publication are the places to confirm where rental expenses get reported. Start with IRS Publication 527 (Residential Rental Property) for rental expense categories, then cross-check the line placement with IRS Instructions for Schedule E (Form 1040).

In practice, many taxpayers add the annual amortization amount to the mortgage interest number they already receive from the lender (Form 1098 or lender statement). You keep the math and the closing paperwork in your files in case the IRS asks how you arrived at the total.

One Paperwork Habit That Saves Headaches

At closing, download and store these items in a “Loan Costs” folder for that property:

• Closing Disclosure (or HUD-1 equivalent)
• The promissory note showing term length
• Any lender itemization explaining points or origination fees
• Your amortization worksheet (even a clean spreadsheet is fine)

If you refinance later, create a new folder for the new loan. Treat each loan’s costs as its own track.

How To Calculate The Yearly Deduction For Origination Fees

The math is usually straight-line: total points/origination fees divided by the number of months in the loan term. Then you claim the months that fall in each tax year while the loan is active.

Step-By-Step Method

1. Find the fee amount on the Closing Disclosure. Watch for points listed as a percent of the loan.
2. Confirm the loan term in months (30 years = 360 months, 15 years = 180 months).
3. Compute the monthly amount: fee ÷ total months.
4. Multiply by months in the tax year the loan was outstanding.
5. Add that amount to your interest expense records for the rental.

A Clean Example

Say you paid a $2,400 origination fee that functions like points on a 30-year rental mortgage (360 months). The monthly amount is $2,400 ÷ 360 = $6.67 per month (rounding to cents). If the loan started in March and you had 10 months of the loan in that tax year, your deduction for that year is about $66.70. Next year, you’d usually claim the full 12 months: about $80.04.

That seems small, yet it adds up, and it’s clean, trackable math that matches the “benefit over time” logic.

Common Fee Labels And Typical Tax Treatment

Closing documents love confusing labels. Use the table below to separate “loan costs” from “buying costs,” since they often get recovered on different timelines.

Fee Label You Might See	Common Tax Bucket For Rentals	How It’s Often Recovered
Loan origination fee	Loan cost / prepaid interest type charge	Amortized over loan term
Discount points / loan discount	Prepaid interest	Amortized over loan term
Underwriting fee	Loan cost	Often treated with other loan costs
Processing / admin fee	Loan-related charge	Depends on what it pays for; keep itemization
Appraisal fee	Loan process charge	Often tied to financing; keep documentation
Credit report fee	Loan process charge	Often tied to financing; keep documentation
Title insurance / recording fees	Purchase closing cost (not loan cost)	Usually added to basis per IRS basis rules
Real estate transfer taxes (buyer-paid)	Purchase closing cost	Usually added to basis

This table is a working map, not a substitute for your exact settlement statement. When a line item is vague, the lender’s fee worksheet can explain what you actually paid for. For the basis side of the split, the IRS discussion of settlement fees and what counts toward basis is in Publication 551.

Purchase Loan Vs. Refinance Loan: What Changes

Origination fees can show up on a purchase loan or a refinance. The treatment often stays “spread across the loan,” yet two real-life details change how your schedule works.

Purchase Loan Timing

With a purchase, your first tax year commonly includes only part of the year, since you didn’t have the loan in January. Your yearly slice is smaller in year one, then normalizes in full-year periods.

On top of that, the property itself may not be “in service” for rental until you’re ready to rent it. If you buy in May and you don’t list it until August after repairs, your rental activity timeline matters for what you report in that year.

Refinance Loan Timing

With a refinance, you can end up with two overlapping tracks:

• Any remaining unamortized loan costs from the old loan
• New loan costs tied to the new refinance loan

When the old loan is paid off, many taxpayers stop amortizing the old loan costs because the loan is gone. If you still have unclaimed amounts at payoff, the payoff year may be the year you claim what’s left, since you no longer have future periods to spread them across.

Keep the payoff statement and refinance closing package together. You want a clean trail showing when the first loan ended and when the second began.

What Happens If You Pay Off The Loan Early Or Sell The Rental

Life happens. You sell, you cash-out, you move equity into a new deal. When the loan ends early, your amortization schedule ends early too.

Loan Paid Off Early

If the loan is paid off before the end of its term, you may have a remaining unamortized balance of points/origination fees. Since you no longer get a future benefit from that loan, taxpayers often claim the leftover amount in the payoff year as part of rental expenses tied to that property’s financing history.

The clean way to handle this is to keep an amortization worksheet that shows:

• Original loan-cost total
• Amount claimed each year
• Remaining balance right before payoff
• Final amount claimed in the payoff year

Rental Sold With Mortgage Payoff

When you sell a rental, the loan often gets paid off at closing. That usually triggers the same “final year” logic for remaining unamortized loan costs. At the same time, you’ll have sale-related costs that affect gain or loss.

Don’t mash all closing costs into one bucket. Keep purchase basis items, loan costs, and selling costs separated. The IRS basis rules in Publication 551 help you keep that line clear.

Mini Worksheet For Tracking Amortized Loan Costs

If you want a simple system you can run in minutes each year, use the table below as a template.

Item	What To Enter	Why It Matters
Total origination fees / points paid	$_____ from Closing Disclosure	Sets your full amortization pool
Loan term in months	____ months	Drives the monthly amount
Monthly amortization amount	Total ÷ months	Base figure for every year
Months in this tax year	____ months	Handles partial first year or payoff year
Deduction for this year	Monthly × months	What you add to rental interest expense
Remaining balance after this year	Total − claimed-to-date	Keeps payoff-year math clean

Edge Cases That Trip People Up

Fees Rolled Into The Loan Amount

Sometimes the lender doesn’t collect the fee out-of-pocket; it gets rolled into the loan. You still paid it economically. The closing statement will show the charge, even if cash-to-close doesn’t feel like it. Use the document numbers, not your gut feeling at the signing table.

Seller-Paid Points Or Credits

Sellers sometimes offer credits that cover part of the buyer’s closing costs. Your paperwork will show who paid what. The tax treatment depends on how the settlement statement reflects it. Keep the full closing package so you can show the fee line item and the credit line item together.

Repairs And Turnover Work Before Renting

Loan costs and points relate to financing, yet the property’s rental status still matters for your overall reporting year. If you bought a property and spent time getting it rent-ready, use consistent records for when it was held out for rent. That’s part of clean rental bookkeeping alongside the loan-cost schedule.

Mixing Personal Use With Rental Use

If you use the property yourself for part of the year, the rental portion of expenses can shrink. That affects lots of line items, including interest-related amounts. The rental property rules for allocating expenses and usage appear in Publication 527.

A Simple Checklist Before You File

• Confirm the fee is tied to getting the loan (points/origination), not a purchase basis item.
• Confirm the loan term in months from the note.
• Run the monthly and yearly math and save the worksheet.
• Add the yearly slice to your rental interest expense records for Schedule E.
• If you refinanced or paid off the loan, compute any remaining balance and record the final-year amount.

If you keep those five steps tight, the deduction becomes boring in the best way. It’s steady, repeatable, and easy to explain if you ever need to show your work.