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andyguy
Level 2

Rental property's deduction for appraisal fee, hazard insurance and inspection

I paid for the lender required appraisal cost out of pocket before closing, I also paid for elective home inspection before closing, and the lender prepaid for hazard insurance for one year (insurance goes into closing cost). My future insurance payment wont be escrowed.

Can I add the appraisal, inspection and insurance cost  to the total rental basis for depreciation or amortize it over the life of the loan? or deduct all 3 cost for current year?

4 Replies
MarilynG1
Employee Tax Expert

Rental property's deduction for appraisal fee, hazard insurance and inspection

Yes, if you just purchased a Rental Property, those closing costs can be added to the Basis of the property.

 

Click this link for more info on Closing Costs for Rental Property. 

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Anonymous
Not applicable

Rental property's deduction for appraisal fee, hazard insurance and inspection

disagree.  appraissal fee and inspection fee amortize over life of loan 

insurance deduct

 

here ae links to a sources including one that is TT related 

https://ttlc.intuit.com/community/credits-and-deductions/help/what-can-i-deduct-when-refinancing-ren...

https://pocketsense.com/closing-costs-deductible-rental-property-5974.html

Carl
Level 15

Rental property's deduction for appraisal fee, hazard insurance and inspection

Here's the simplicity of this.

 - Cost associated with acquisition of the loan are amortized (not capitalized) and deducted (not depreciated) over time. Examples would include loan application fees, origination fees, and any other cost the bank required you to pay before they would give you the loan. Generally these costs are deducted over the life of the loan.

 - Cost associated with acquisition of the property are capitalized and depreciated over time. Examples would include the title transfer fees and any other costs that are paid at the courthouse to transfer the title of the property to the buyer.  Generally, these costs are added to the cost basis of the property and depreciated as "a part of" that cost basis.

andyguy
Level 2

Rental property's deduction for appraisal fee, hazard insurance and inspection

I found this statement:

  "line 903 of HUD-1. Hazard insurance – Amortized over the period the payment covers, which is usually one year."

 

According to the above statement, for a rental property purchased  on 6/15/2019, I should  divide $600 harzard insurance (listed in closing) by 365 day  X 199 day (number of days from 6/15/2019 until 12/31/2019)= $327.12 .

Therefore I can amortize in form 4562 for a period of 12mo then report in my schE $327.12 deduction for year 2019.

the remaining balance of $272.87 will be  deducted for 2020.

Is my calculation correct?

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