For the sale or purchase of Real Property:
Settlement costs.
Your 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.
The following items are some of the settlement fees or closing costs you can include in the basis of your property.
Abstract fees (abstract of title fees).
Charges for installing utility services.
Legal fees (including title search and preparation of the sales contract and deed).
Recording fees.
Surveys.
Transfer taxes.
Owner's title insurance.
Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
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.
Points (discount points, loan origination fees).
Mortgage insurance premiums.
Loan assumption fees.
Cost of a credit report.
Fees for an appraisal required by a lender.
Fees for refinancing a mortgage.
If these costs relate to business property, items (1) through (3) are deductible as business expenses. Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan.
Points.
If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), don't add the points to the basis of the related property. Generally, you deduct the points over the term of the loan. For more information on how to deduct points, see Points in chapter 4 of Pub. 535.
Points on home mortgage.
Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. If certain requirements are met, you can deduct the points in full for the year in which they're paid. Reduce the basis of your home by any seller-paid points. For more information, see Points in Pub. 936, Home Mortgage Interest Deduction.
Assumption of mortgage.
For additional information, please refer to the following link:
IRS Publication 551 Basis of Assets
However, a 1031 Exchange can be very different. You must know the adjusted basis of the property given up, in addition to calculating the adjusted basis of the property received.
Refer to the following information regarding like-kind exchanges reported on Form 8824:
IRS Information on Like-Kind Exchanges
[Edited 03/01/2021|7:31 pm pst]
