Q. Last year I refinanced one of my rentals and my personal residence. My preparer wants me to send her a copy of the escrow settlement statement. I gave her the settlement fees. Why does she need to see the actual document?
A. Very briefly, there are items included in the escrow settlement fees which may not be currently deductible. As an example, if you refinanced your loan for 15 years, the points you paid, if any, must be amortized over 15 years on a re-fi. The rules differ for the type of loan and type of property.
Another reason I ask for escrow settlement statements is to have copies for when the properties are finally disposed. I had one couple who made 4 major moves in the US and finally disposed of one of the properties. I found 13 escrow settlements which pertained to this one property which had long been forgotten about and partially lost by the movers. How happy do you think they were when I pulled out every re-fi and was able to increase their cost basis by several thousand dollars?
Tax Tip: Very few of those pesky costs to re-fi are deductible in the year of the re-fi. They are deductible, however, when you finally dispose of the property. This can add tens of thousands of dollars to your cost basis, so be sure to save them until you sell the property!