To clarify, in Publication 527, the appraisal fees are not added to the basis if REQUIRED BY A LENDER. (emphasis added). Generally, appraisal fees will be deductible on your Schedule C or Schedule E if the appraisal is conducted for business reasons. Getting an appraisal to know the current value in order to decide whether to keep or sell a property is an ordinary and necessary business expense since it would be foolish to just come up with a price randomly. While you can use real estate agents' comps, you can also hire a consultant with specialized knowledge of valuations (this is an appraiser).
If a taxpayer incurs transaction costs (including appraisal fees) while selling or disposing of property other than inventory, transaction costs are capitalized. Under the general rule, capitalized transaction costs are (1) in the year of sale, subtracted in arriving at the amount realized, or (2) in the year the sale is abandoned, deducted as a loss under Sec. 165, if permissible. Under an alternate rule, taxpayers add capitalized transaction costs to adjusted basis in situations involving securities, like-kind exchanges, and installment sales.
See 26 CFR § 1.263(a)-2.
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