Do I capitalize and depreciate closing costs on a cash-out refi used to put a new roof on my rental property?

[YouKnowWho522]

I own a 2-family home, my family lives in one of the units and I rent out the other. Half of many expenses are deducted on schedule E for the rental portion of my property (ie. real estate taxes, mortgage interest, etc.)

I needed a new roof and siding so I refinanced my mortgage and received cash back from the available equity in order to pay for it. I received $40k in cash back which paid for the improvements, there were appx. $10,000 in closing costs, of which $4k were "fees" related to loan origination, appraisal, title, recording, etc. (the rest were prepaid taxes, interest and insurance and the initial escrow). 

Since 50% of the costs were allocated to the rental portion of my property, I plan to capitalize the $20k for the roof and siding improvement and depreciate over 27.5 years. But, how do I handle the closing costs? Specifically the $4k in fees? Is this added to the cost basis of the improvement (increasing the improvement from $40k to $44k, the rental portion being $22k) and depreciation adjusted accordingly? Or, can I expense these fees in the year they were incurred? Or, are they only good for offsetting potential future capital gains (in the event I ever sell the property)? Any help would be greatly appreciated.

[Carl]

Costs associated with acquisition of the property are added to the cost basis of the property and depreciated over time. Since this was a refi, you have no property acquisition costs.

Costs associated with acquisition of the loan are amortized (not capitalized) and deducted (not depreciated) over the life of the loan.  Therefore the $4K loan acquisition costs are entered as "other" asset of type "amortizable asset" and classified under SEC 163: Loan Acqusition Costs.

Money put into the escrow account is not reported anywhere on the tax return.

Money used to pay property taxes to the taxing authority are reported as such on your tax return in the tax year the property taxes are paid. I typically don't see property taxes paid at closing on a refi. But it's definitely not impossible. For example if property taxes just "happened" to be due at the time of the refi.

The cost of the new roof, properly apportioned for the rental percentage, are entered as a completely new asset, classified as residential rental real estate and depreciated over the next 27.5 years. Depreciation starts on the date the new roof was completed and placed "in service" as a rental asset.

[YouKnowWho522]

That was incredibly helpful, I really appreciate it!