Adding closing costs of purchased rental property to cost basis when selling

Forum|Forum|6 years ago
July 3, 2020
1 reply
7 views

I watched a YouTube video and the CPA on the video stated that I can add the closing costs when I PURCHASED my rental property, to the cost basis when I SOLD the rental property. I couldn't find anything about this when searching the Internet. It somehow doesn't sound right. Thoughts?

AmeliesUncle

Level 15

Yes, the closing costs you paid when you purchased the property are part of your Basis. You should have been depreciating that amount. Because it is part of your Basis, that does affect your gain/loss when you sell.

But if you had properly included it in your Basis when you set up depreciation, the program should already have the correct number and you don't do anything else.

Carl

Level 11

@AmeliesUncle

You should have been depreciating that amount.

How is that possible? They're talking about closing costs incurred and paid when "SELLING" the property.

The below applies to both buyer and seller.

- Closing cost related to acquisition of the property are added to the cost basis of the property. As the seller, it's doubtful you have any costs of this type.

- Closing cost related to acquisition of the loan are amortized (not capitalized) and deducted (not depreciated) over time; generally over the life of the loan. As the seller, any closing costs of this type that were incurred as a part of the sale, are included as a part of the sales expenses and deducted in full in the year of the sale. (Which the program does specifically ask you for.)