Hello everyone,
I need assistance in order to include the information of the closing disclosure to the turbo tax. I have reviewed some other discussions but I still do not have a clear picture from what belongs to each of the categories below.
My closing disclosure is not a HUD-1 form and is shown below.
I would appreciate if anyone can help me with what of the above items can be included in each of the categories for the cost basis.
Also, I would like to ask you if the home inspection can be deducted or included on the cost basis. If so, under which category do I have to include it.
Thank you very much in advance
Costs associated with acquisition of the property are capitalized and depreciated over time. Instead of entering these costs as a separate asset, they are generally just added to the cost basis of the property. The program does this for you just fine. Examples of these costs would include transfer fees, sometimes referred to as Transfer taxes or recording fees which are paid at the courthouse to remove the seller's name from the deed and replace it with the buyer's name.
Costs associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. Examples would include loan application fees, property survey fee if a property survey was a condition of the lender for loan approval,
Since it seems no two lenders provide the same information in the same way since the HUD-1 requirement was done away with, you'd be best to get with your lender on "exactly" what is what here.
Do be aware that escrow deposits are not a deductible expense on any tax return.
Hello Carl,
Thank you very much for your response. Can I deduct or depreciate the appraisals fee, processing fee underwriting fees and processing fees for the loan? If so, under which category do I have to include them?
Thanks
Kosta
appraisals fee,
That's generally a loan acquisition cost. So it get amortized and deducted (not depreciated) over the life of the loan. Typical loan life periods are 15 years and 30 years - though I've seen a few for 40 years on commercial property.
processing fee underwriting fees and processing fees for the loan?
These are also loan acquisition costs included in the total to be amortized.
If so, under which category do I have to include them?
If things pertaining to the loan are broken down on your closing statement the same way they're broken down and separated in the program, then when you enter them in the program you'll see a separate entry in the Assets/Depreciation list called either "financing costs" or "Re-Financing Costs". However, since the "standardized" HUD-1 closing statement was basically done away with a few years back, seems that lenders just "make up their own" closing statement. Therefore, things don't always line up as we would like. So here's how to manually enter your loan acquisition costs as an Amortized asset in the Assets/Depreciation section. Do note that what matters here is the loan acquisition date, not the "in service" date of the property.
Now, if this is for a personal residence that was converted to a rental more than a year after you purchased it, then your loan acquisition fees were fully deductible in the year of purchase. So you can't "double-dip" and claim them again as an amortized asset. Just be aware of that. (That does not apply to refinancing the property if the refi occurred in the same tax year it was converted to a rental)
ENTERING POINTS
here's how to enter the points in the Assets/Depreciation section.. (does not apply to entering the property itself, or any other property assets.)
- Select the Add and Asset button. (go straight to the asset summary if presented that option)
- Select Intangibles/Other Property, then continue.
- Select Amortizable Intangibles, then continue.
- Describe it as something like "2021 Financing Fees". Then enter the amount, and the closing date of the loan. Then continue.
- Select "purchased new", then "100% business use", enter the closing date of the loan (again), then continue.
- Code section is 163:Loan Fees, then continue.
- Useful Life in Years is the length of the loan, then continue.
- You can "show details" if you like. Then continue, and that does it
Costs that are related to the purchase of the property would be added to the cost basis. Appraisals fee would be added to the cost basis (purchase price).
The settlement fees include the costs of getting a loan and would include the processing fees and underwriting fees. These are not deductible.
Thank you Patti for your assistance,
Therefore, I cannot deduct or depreciate the fees for getting the loan but I can depreciate the appraisals fee. I read somewhere that you cannot depreciate the appraisals fee requested by the lender. I assume that my bank requested the appraisals before I got the mortgage. Can I include this cost as depreciation or not?
Also, I have two more questions. Where do I have to include the home inspection that we performed in order to purchase the house? Is it an expense under professional fees? Is it a part of the cost basis? If so under which category do I have to add it?
My last question is regarding the attorney fee. Could you please help me about where I have to include them?
Thanks
I appreciate your assistance
Kosta
The legal fees for the lawyer as a cost related to the acquisition of the property can be added to the basis and depreciated
As Carl said, the appraisal fee (required by the lender), underwriting fees, home inspection cost, and processing fees would be added to the loan and amortized over the life of the loan. These costs associated with obtaining the mortgage are amortized over the life of the loan.
See IRS Publication 527 for more information.
Hello PattiD and Carl
Yes, the closing costs do not have to be included in the loan to be able to add them to the basis of the property. The deductible closing costs are those for interest, certain mortgage points and deductible real estate taxes.
I cannot go through your closing disclosure to advise what of the lines need to be included on each category for the cost basis? Also, your closing disclosure does not come through to me. However, I can provide you with the information on what is allowed. Rental Property treatment of closing costs
A quick summary of the many settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including: