Rental property purchase closing costs

[bmshah1]

I bought a new house as a rental last year. I'm trying to figure out which of my closing costs I can add to the following 5 categories of TT and which ones should I add to my purchase price or mark them as an expense.

TT categories:

a) abstract and recording fees b) Legal fees, title search, document preparation c) land surveys d) transfer or stamp taxes e) expenses you paid for the seller

The closing costs I incurred are as follows:

1. 1% loan origination fee

2. funding fee

3. tax certification fee

4. underwriting fee

5. wire transfer fee

6. appraisal fee

7. credit report fee

8. flood certificate fee

9. title - erecording fee

10. title - lender's title insurance

11. title - notary fee

12. title -settlement fee

13. trust review fee

14. county recording fees 

15. prepaid interest

16. hoa set up fee

How do I know which of the 16 above charges falls through a - e categories of TT. In my case the seller gave a lump sum credit. How do I account for that?

[PatriciaV]

Please clarify if these fees increased the cost of the home or if the seller reimbursed you for them (either in cash or a reduction in the sales price). 

[bmshah1]

@PatriciaV the seller credit went towards lowering our loan amount but not towards the closing costs. 

[PatriciaV]

The closing costs that are not capitalized as part of your home's basis (purchase price) are:

• mortgage interest (#15)
• "points" / loan origination fees (payment to lower interest rate) (#1 & #2)
• mortgage insurance (PMI)
• property taxes
• HOA fees (#16)
• bank fees (#5)

Some of these items are deductible if you itemize your deductions. Most property sales include a payment of prorated property taxes - you might need to review your documents to be sure you didn't miss this deductible expense.

The remainder of the items you listed may be included in the "purchase price." How you divide them into the categories provided by TurboTax is up to you. This information is for your records and is not reported to the IRS.

The seller credit reduces your mortgage balance, which is not reported on your tax return.