Thank you for sharing!

Your article was successfully shared with the contacts you provided.

With interest rates steadily increasing, more and more borrowers are considering refinancing early into a low rate and paying the prepayment penalty. The strategy isn’t for everyone, and generally only works if the borrower is looking to pull equity out of the property. However, there is one big benefit that seems to fall under the radar: a tax write off. Prepayment penalties are tax deductible in the State of California and at the federal level, meaning that the penalty could be reduced by half for borrowers in the top tax brackets.

“For both federal and state tax purposes, prepayment penalties are tax deductible against ordinary income,” Michael T. Elmore, EVP and managing director at NorthMarq Capital, tells GlobeSt.com. “In California with high-income owners—with a federal tax rate of 37% and the state tax rate is 13.3% at the margin—the federal and state government are giving you half of the money back as a write off against your ordinary income.”

Kelsi Maree Borland

Kelsi Borland is a freelance writer and editor living whose work has appeared in such publications as Travel + Leisure, Angeleno and Riviera Orange County.

More from this author


Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now

Copyright © 2019 ALM Media Properties, LLC. All Rights Reserved.