Basically, there are two types of expenses associated with a real estate mortgage.
- Those expenses associated with acquisition of the property are added to the cost basis of the property, which gets capitalized and depreciated over time, based on the MACRS classification of the property. Appraisal fees are not associated with acquisition of the property.
- Those expenses associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. This would include things like appraisal fees if the appraisal is a requirement of loan approval. However, your appraisal fee was not a requirement of loan approval since you already have the approved loan. Therefore it's just flat out not a deductible expense anywhere on the tax return.
