Cost basis for the sale of a second home

[marizar1309]

hello everyone,

I sold a second home in 2022 after almost five years of owning it. I got the original mortgage in 2018 and refinanced in 2022. Can I include the various closing costs of these two mortgages in the cost basis that I am deducting from the gross proceeds (1099-S) of the property? 

Thanks for the info. 

[MonikaK1]

You can add certain nonrecurring closing costs to your basis in the property.

Your basis includes the settlement fees and closing costs for buying the property. You can't include in your basis the fees and costs for getting a loan on the property. A fee for buying property is a cost that must be paid even if you bought the property for cash.

The following items are some of the settlement fees or closing costs you can include in the basis of your property:

• Abstract fees (abstract of title fees).
• Charges for installing utility services.
• Legal fees (including title search and preparation of the sales contract and deed).
• Recording fees.
• Surveys.
• Transfer taxes.
• Owner's title insurance.
• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

Please see IRS Publication 551, Basis of Assets, for more information.

[marizar1309]

Thank you for the info. So refinancing a property is essentially taking a loan on that property? So I can deduct settlement fees and closing costs from the original mortgage I used to purchase the property, but not the costs associated with refinancing that mortgage three years later. Correct? 

[KrisD15]

Correct.

Points, however, from a refinancing loan can be amortized (spread out)  over the life of the loan.