Settlement Statement/Cost basis

[paulf615]

I bought a property in 2022 and am trying to figure out which of the costs I need to include in the cost basis now that Im renting the property.

Turbotax is asking for the following: 

•  Abstract and recording fees
• Legal fees, title search, document prep
• Land survey
• Title insurance
• Transfer or stamp taxes
• Expenses you paid for the seller

My Settlement statement has the following as the debt I had to pay for;

Loan charges

-Application fees

-Lender fees

-Appraisal Fee

-Inspection Fee

-Condo Questionnaire

-Credit Report

-Debt Report

Government Recording and Transfer Charges

-Recording fees

Title Charges

-Lenders Tile Policy

-Settlement or Closing Fee

-MLC

-Tiltle Exam

-Owners title policy

[Carl]

Costs related to acquisition of the property are added to the cost basis of the property. An example would include title transfer fees and documentary stamps.
Costs related to acquisition of the loan are amortized. For a business property loan those amortize costs are deducted over the life of the loan. For personal property those costs are fully deductible in the tax year the loan is approved/disbursed. Examples include points, which are basically pre-paid interest on the loan, and survey fees provided a survey was required as a condition of loan approval.
If I recall correctly, the program will asks you for each individual item (unless they changed it, which is very possible). Note that not all of those items you listed are deductible or added to the cost basis. So if the program doesn't ask for them, you can't claim them.

[paulf615]

I understand in which cases it implemented, I'm more confused about what the charges mean and how TurboTax categorizes each charge

[DianeW777 · Accepted solution]

The following charges are used to add to the cost basis of the property, they will be bold.  You can  add them in a category you feel is most appropriate or put them in Legal Fees.  As long as you have the documentation that's what is important.  If there are commissions be sure to include that as well.

Do no use any mortgage interest, real estate or school taxes, local or city taxes.  Transfer tax is a separate and identifiable expense of purchasing a property.

Correction- See IRS Publication 551 (pages 2 & 3)

Loan charges - Loan charges are part of the loan and not added to cost basis

-Application fees

-Lender fees

-Appraisal Fee

-Inspection Fee

-Condo Questionnaire

-Credit Report

-Debt Report

You can't include in your basis the fees and costs for getting a loan on property.

Government Recording and Transfer Charges

-Recording fees

Title Charges

-Lenders Tile Policy

-Settlement or Closing Fee

-MLC  - Assuming it means Municipal Lean Certificate

-Title Exam

-Owners title policy

I'm not exactly sure what the last two are, but the rest would be closing costs that can be added to the cost basis of the property as noted above.

Please see the update above.

@paulf615 

[Edited: 02/07/2024 | 5:43 AM PST]

[Carl]

@DianeW777  just curious as to where you got that list and how you identify the bold items as pertaining to acquisition of the property. About half (maybe more) are associated with acquisition of the loan. I can't find the IRS Pub that I used to get my original list of amortizable charges and "add to cost basis" charges. So that's why I'm asking. I'd like to update my own information. Thanks.