So you have purchased a rental property. You may know the purchase price but are unaware of what to do with all the closing costs and other fees that you have incurred.
Well the good new is that if the property was purchased as an investment property (with rental intent), those costs are either deducted immediately or as an increase to the cost basis of the property. The cost basis will then be depreciated. So at the end of the day, all the costs will at some point turn into tax deductions.
But combing through a settlement statement can be a pretty daunting task. We see them all the time and even for us they can be challenging. But if you have the patience to do a thorough review, you may find some nice tax deductions.
So let’s take a look through many closing costs that result in additions to cost basis. They would include the following:
- Abstract costs
- Expenses for installing utility services
- Legal costs
- Title insurance
- Recording and notary fees
- Surveys
- Escrow fees
- Transfer taxes
- Any amounts that the seller owes that you have agreed to pay. This could include unpaid property taxes, interest, recording fees or mortgage costs, any charges for repairs or improvements, and real estate sales commissions.