Are All Closing Costs Deductable In The Year Of Purchase?
On a rental property that will be held for more than one year, are the closing costs deductable or are they added to your cost basis? If some are one way and some are the other, what is the breakdown?
Depends on the type of item:
Costs related to purchase (appraisal, title insurance, closing fee, etc) are added to the cost of the property and depreciated.
Everyday expenses, such as prorated utilities, HOA dues, are deductible. Prorated rents are income.
Items paid into escrow (property taxes, insurance) are not deductible until they are paid out of escrow (usually shows on your 1098 statement from your mortgage company).
Points are amortized over the life of the loan.
Right or wrong, I treat the "Capital Contribution" you describe as a special assessment by the HOA and deduct it as an operating expense on my Schedule E.
I agree with your CPA. You will also probably be subject to SE taxes on the income. If you want to minimize the taxes in the future, consider renting out the properties for at least 1 year before selling. Then you only have to pay the LTCG and recapture tax on depreciation (if applicable).
Can someone explain to me what Se taxes are ?, I understand the short term capitol gains tax.
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Self Employment; supposedly Social Security contributions. See www.IRS.gov for more info.
Ypochris,
Thanks for the reply .
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