How to deduct or depreciate closing cost on rental property if seller pays partial?

[yueh89]

Hello, I bought a rental property in 2016 and the closing cost was $10K, including escrow prepayment as it is an impound loan. The seller paid $5K and I paid the other $5K. Seller's payment shows as "Seller's Credit" on the statement. However, it appears as total and does not specify which parts the "Seller's Credit" would apply to; I mean it does not say if "Seller's Credit" would cover mortgage interest, title charges, escrow prepayment, or something. I wonder how do I make deduction and depreciation in this case? Can I still deduct 100% origination charge, points, mortgage interests, etc., if the amount does not exceed $5K (what I paid)? How about depreciation, such as title charges?

[TaxGuyBill]

It may not necessarily be correct, but I apply the "seller's credit" to the Basis of the home, which decreases the amount that you are able to depreciate.

[Opus 17]

I believe TaxGuyBill is correct.  Any "sellers credit" is treated like a reduction in the sales price and therefore, goes to the depreciation basis.  You still get credit for all the closing costs that are deductible.   In other words, if the contract was for $100,000, and there were $10,000 of closing costs and a $5000 seller credit, you treat the transaction as if the sales price was $95,000 and you paid all the closing costs.

Obviously the usual rules still apply.  You can only deduct property taxes for the dates you owned the property, even if the closing costs included back taxes that the seller owed.  And any closing costs that aren't deductible are added to the basis.  So instead of having a $110,000 basis and then worrying about how to allocate the $5000 sellers credit, you just have a $105,000 basis (more or less).

[yueh89]

How about "Lender Credit"? Say if the total closing cost is still $10K ($5K loan cost + $5K other), and Lender paid $2K. Do I also treat it as basis and deduct it from sales price? Or do I deduct it from the $5K loan cost?