Do annual real estate taxes and mortgage interest count towards adjusted cost basis on a second home?

[TerboTacks]

Hello TurboTax community

For a second property sold (non-rental), does the mortgage interest paid on it along with the yearly real estate taxes paid on it count towards the adjusted cost basis for it?

I've accounted for the initial purchase, settlement costs, permanent repair costs and initial sales transfer tax at time of settlement - but am I able to include the mortgage interest and the annual real estate taxes into that adjusted cost basis? 

If yes, please include IRS.gov reference too if you could.

Thanks in advance

[Mike9241]

NO!!! on a second home, those expenses are Schedule A deductions subject to the limitations for taxes and mortgage interest. 

[TerboTacks]

Thanks for the response!  With that said, where do we enter a Schedule A into TurboTax?  The "investment" section didn't prompt me for anything to add real estate taxes for second home in particular. 

[DawnC]

To enter real estate taxes and mortgage interest on Schedule A, search for 1098 and use the Jump to 1098 link to be taken to the mortgage interest section.   If you search for Schedule A, it will take you to medical expenses to page through first.   You can get there from the Deductions and Credits section as well. 

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There is no tax deduction for transfer taxes, stamp taxes, or other taxes, fees, and charges you paid when you sold your home. However, if you paid these amounts as the seller, you can treat these taxes and fees as selling expenses.  See IRS - Selling your home.

Selling Expenses are:

• Any sales commissions (for example, a real estate agent's sales commission)
• Any advertising fees
• Any legal fees
• Any mortgage points or other loan charges you paid that would normally have been the buyer's responsibility
• Any other fees or costs directly related to the sale of your home

[TerboTacks]

Thanks @DawnC  I went to that section and it indicates only for those real estate taxes for 2023 and not previous years.

My question is more specific to an investment property and seeing if the previous annual real estate taxes over the years can count toward  the sale of the second property? 

ie: the secondary property sold for $50,000 but over the several years(say 5) we had paid $1,000 a year in property taxes, so $50,000 - ($1000x 5 years) = $45,000 adjusted cost basis for the property (not including any realtor fees or settlement costs)

Is this feasible?

Thanks again

[PatriciaV]

There are some options to capitalize carrying costs for an investment property under Section 266, See this article from The Tax Adviser for more information: Elective capitalization as a TCJA planning tool.

You may wish to contact a local tax professional for guidance in applying these rules to your property.

@TerboTacks