Loan Fees on Business Loans???

The business bought an office building to conduct their business. The escrow statement includes Loan Fees .(SBA fee such as SBA guarantee fees, loan packaging fees, appraisal fees, environmental survey fee) Do they get added to the basis of the building or do they get expensed or amortized?  To my understanding, escrow/title fees are added to the basis, real estate taxes and hoa fees are expensed. So what about these loan fees? This is what I read on the IRS website in real property section, which is confusing to me http://www.irs.gov/publications/p551/ar02.html#en_US_2010_publink1000256917

its saying  "You cannot include in your basis the fees and costs for getting a loan on property.... If these costs relate to business property, items (1) through (3) are deductible as business expenses. Items (4) and (5)(which are loan fees) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. ""    So, the loan fee must be capitalized, correct? Now, my question is what do they mean by "capitalized"? How would I record it in QuickBooks? Do I take all loan fees and create an asset account for the amount?  So loan fees become an asset on the balance sheet?!  That seems too weird to me....Then create amortization expense account and accumulated amortization account. And every month I would debit amortization expense and credit accum amortization? or do I actually add the loan fees to the basis of the building and then depreciate every year?

Answer

Kate, when you asked this on the QB user forum, you indicated your program was Intuit Tax Online. Now you indicate you are preparing taxes using ProSeries.


But your question seems to indicate that you are using QuickBooks? Which program are you using? Are you a professional tax preparer?


"Now, my question is what do they mean by "capitalized"?"

Capitalized means "taken over time."


It is like Depreciation, but depreciation is "the change in the value of STUFF over time" and Capitalization is "the change in the value of Funds over time."


"How would I record it in QuickBooks? Do I take all loan fees and create an asset account for the amount?" 

Capitalized Assets.


"So loan fees become an asset on the balance sheet?!  That seems too weird to me...."

You are NOT being allowed to write them off all at once as an expense. Think of it as "invested in the acquisition of this loan."


"Then create amortization expense account and accumulated amortization account."

Yes, the process is Amortization (calculated over time). This is Not ALSO Depreciation.


"And every month I would debit amortization expense and credit accum amortization? or do I actually add the loan fees to the basis of the building and then depreciate every year?"


A Capitalized Fee does not affect Basis. These fees having nothing to do with the Real Property. They have to do with how it is being paid for.


"must be capitalized as costs of getting a loan and can be deducted over the period of the loan."

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