The costs you specifically mention are all acquisition costs. When it comes to real estate, there are two possible types of acquisition costs.
- Cost incurred in acquiring the loan are amortized and deducted over the life of the loan. I am assume that no mortgage is involved here. Therefore, you don't have any of these costs.
- Cost incurred in acquiring the real estate property are added to the cost basis of the property and get depreciated over time. So the cost you paid (as you have identified them) are all property acquisition costs. They are not deductible. Instead, they get added to the cost basis of the property only "IF" those costs were paid by the beneficiary recipient. If they were paid for out of the estate, (I assume the estate of the deceased was still active in 2020 and therefore required to file the 1041) then the estate gets to flat out deduct them
Do these types of expenses ordinarily get added to the cost basis for "acquiring" the property (and thus depreciated accordingly over 27.5 years)?
Yes. Now if the benificiary recipient has been reporting this property on SCH E as a part of their personal tax return "prior" to 2020, there's two ways to deal with this. Unless someone knows of a rule or law that prevents this, I recommend the first way, so that it won't screw with the depreciation history of the property.
Method 1:
Lets "assume" these costs are $2,000 exactly.
In the assets/depreciation section work through the rental property asset itself. When you get to the screen with the cost basis information on it, add $2000 to the amount in the COST box. Then add $2000 to the amount in the COST OF LAND box.
This will add $2000 to the cost basis of the land, without changing the cost basis of the structure. This way, since land is not depreciated, the depreciation history on the structure is not screwed up.
Method 2:
Enter an entirely new asset and call it "property acquisition costs". The "in service" date for the asset will be the date the title transfer was recorded. The asset will be classified as "Residential Rental Real Estate" and depreciated over the next 27.5 years.
The reason I suggest Method 1, is because depreciating a mere $2-3000 over 27.5 years comes out to roughly $100 a year at best. That's just not going to have any impact on the tax liability at all over that depreciation period.
