Do closing costs like title fees from a refinance increase basis?

Forum|Forum|7 years ago
June 6, 2019
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sirshad1

Employee Tax Expert

Yes, they do increase basis if they are for your residence. These costs (appraisals, underwriter, attorney, or bank fees, title fees, etc.) are generally not deductible in a mortgage refinance.

For more information regarding mortgage refinance deduction, click here

AlexB_

Level 2

It seems that the IRS Publication 551 specifically states that refinance costs can't be added to the basis.

Could somebody please clarify this?

Here is a quote from Publication 551 (highlighting is mine):

Settlement costs.

our basis includes the settlement fees and closing costs for buying property. You can't include in your basis the fees and costs for getting a loan on property. A fee for buying property is a cost that must be paid even if you bought the property for cash.

[...]

Settlement costs don't include amounts placed in escrow for the future payment of items such as taxes and insurance.

The following items are some settlement fees and closing costs you can't include in the basis of the property.

Casualty insurance premiums.
Rent for occupancy of the property before closing.
Charges for utilities or other services related to occupancy of the property before closing.
Charges connected with getting a loan. The following are examples of these charges.
1. Points (discount points, loan origination fees).
2. Mortgage insurance premiums.
3. Loan assumption fees.
4. Cost of a credit report.
5. Fees for an appraisal required by a lender.
Fees for refinancing a mortgage.

DawnC

Level 15

No, you don't add them to the basis. As you quoted from the IRS:

You can't include in your basis the fees and costs for getting a loan on the property. A fee for buying property is a cost that must be paid even if you bought the property for cash. They are not deductible for a personal residence, nor are they added to the basis.

The article the user above posted explains that those costs may be deductible or capitalized if you are refinancing rental property (business property).

@AlexB_

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