The correct way to report these costs would be to add them to your basis.
According to Rental Expenses | Internal Revenue Service-
Generally, deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes.
Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including:
- Abstract fees
- Charges for installing utility services
- Legal fees
- Recording fees
- Surveys
- Transfer taxes
- Title insurance
- Any amounts the seller owes that you agree to pay (such as back taxes or interest, recording or mortgage fees, sales commissions and charges for improvements or repairs).
