Dictionary of Real Estate Terms: amortization of deferred charges
amortization of deferred charges
a procedure that does for intangible assets what depreciation accounting does for tangible assets. Under Generally Accepted Accounting Principles (GAAP), the cost of an intangible asset is to be amortized(written off), usually over the life of the asset. Typically applies to costs incurred to arrange loans and leases; these costs are written off over the term of the loan or lease.
Example:A 2% fee, amounting to $20,000, was incurred to arrange financing for a small office building. The financing has a 20-year term. Therefore, 1/20 of the fee is amortized each year on the building owner's/borrower's tax return and financial statement. This results in a tax deduction of $1,000 per year to derive net income.
