Do I include both owner title insurance and lender title insurance or just owner title insurance when determining cost basis for a rental property transaction?

[Carl]

Lender title insurance is never deductible by the owner.

[hanginglimbs]

even if paid for by the borrower?

[Carl]

On the web page at https://www.irs.gov/publications/p530 in the section for expenses (not basis) titled, "non-deductible items" it states:
 You cannot deduct any of the following items. 
•Insurance (other than mortgage insurance premiums),  including fire and comprehensive coverage, and title insurance.

Then in the section titled "Items added to basis" it states verbatim.
 
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.

Now in the exceptions section, it does exclude the property insurance for rental property from the above, but it does not exclude the "lenders" title insurance specifically. The only title insurance specifically and explicitly addressed (that I can find) is the owners title insurance.

[Anonymous]

If a property is a rental, Publication 527, not 530, is the right one (publication 527 is for real properties that are owned for income, Publication 530 is for properties that owned for private use).   This publication states that title insurance is part of a property basis and is deductible when calculating capital gains.

Settlement fees and other costs.

The following settlement fees and closing costs for buying the property are part of your basis in the property.

• Abstract fees.

• Charges for installing utility services.

• Legal fees.

• Recording fees.

• Surveys.

• Transfer taxes.

• 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.

[anilj]

I am including both lender and owner title insurance because the publications don't get too detailed. It's a cost that was incurred to purchase the rental.

[DianeW777]

Insurance expense can only be claimed by the owner of the property. And only what they paid for that insurance for their rental property

• House insurance
• Business liability insurance if applicable.
• Mortgage insurance premiums (MIP)also known as points deducted ratably over the life of the loan with other points (also known as loan origination fees).  They are not actually considered insurance in the normal sense of the word because it is used to pay off the mortgage in certain situations.

You cannot deduct insurance paid by the lender or money placed in escrow that has not yet been used to pay for any insurance.

Lender paid closing costs and those paid by the buyer/owner can be added to the purchase price of the home to create an adjusted basis for depreciation. This does not include points, MIP, property taxes or insurance are not part of the closing costs that are added to the purchase price. 

Refer to Publication 527 for rental properties.

[User ID 4993393]

Hello, can "Escrow fee" - the charge owner of rental property paid at closing for "escrow service" - be added to cost basis of rental property? I assume it goes under "legal fees"? Thank you

[PatriciaV]

Yes, escrow fees (paid to the title company to hold the escrow funds) would be included in the basis of the rental property, as part of legal fees or title insurance. This designation is for your purposes only. The Total Basis is used for depreciation and/or reporting a sale.