Rental home purchase - deductions vs cost basis

[gxu120]

I purchased a new rental property in 2021 and the purchase was financed. My understanding is that prepaid items like property tax and mortgage points are tax deductibles. Closing costs are added to the cost basis. 

In a financed property, which of the closing costs can I add to the cost basis? For example, would the mortgage origination fee, appraisal, or lender title search and insurance be counted towards the cost basis or only items that pertain to me? 

In the "Enter Escrow Fees" portion of TurboTax Home & Business, the instructions don't mention anything about separating lender portions of these costs.  

[ColeenD3]

Yes. Start with the purchase. Separate your land from your building. This will give you a percentage to use for any settlement fees, below.

Once you have that fixed, your improvement is added to the building portion. The land, unless there are specific improvements to it, will continue to be just the land.

Items added to basis.

 You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home. The following are some of the settlement fees and closing costs that you can include in the original basis of your home.

Abstract fees (abstract of title fees).

Charges for installing utility services.

Legal fees (including fees for the title search and preparation of the sales contract and deed).

Recording fees. 

Surveys. 

Transfer or stamp taxes.

Owner's title insurance.

Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions. If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement. 

[chafint]

In a sale of a vacation house, would Gift of Equity be considered a Business Expense when repoting the sale on your taxes.  The home was in my  possesion for 40m years. 

 Thank you. 

[AmyC]

You owned a rental house and gave part of it away. When you gave part of it away, you gave away that portion of your basis. For example: You bought the house for $50,000 and later gave away half the house. Your basis in what you own is $25,000 and the person you gave it to has a basis of $25,000 in the house. The whole basis of the house remains at $50,000.

@chafint

[gxu120]

I've read what you've written in the IRS documents.  However, my specific question is if I am financing the property, do things like the Bank's title insurance or appraisal fee, items that I pay for in my closing costs, eligible for increasing the cost basis of the house? 

On my previous rental purchases done in all cash, it was clear that all the items you mentioned would be added to the home's cost basis. 

Thank you!

[DianeW777]

Yes. the settlement cost that can be added to the cost basis of the property.  The following items can be included in the cost basis of the property when paid to purchase the property (not all inclusive):

• Real estate commissions 
• Transfer tax
• Legal fees
• Advertising fees
• Home inspection reports
• Title insurance
• Geological surveys
• Loan charges (points) or other fees paid on the buyer's behalf

Sales or purchase expenses do not include:

•  Mortgage payoffs
•  Home equity loan payoffs
•  Rent-back costs
•  Payoff to creditors
•  Property taxes
•  Home owner association fees
•  Insurance
•  Loan origination fees (Points are mortgage interest and must be amortized over the life of the loan for a rental property).

@gxu120