Does "Sales Expenses" related to sale of investment property include the amount I paid to pay off the mortgage? If not, where do I put that?

[prynciss]

I have lots of other expenses that don't seem to go here according to TT -- mobile signing services, pre-paid HOA fees, home warranty, water bill, etc. Where do these go since they're not listed under the definition of "Sales Expenses"?

[Cynthiad66]

No.  The amount to pay off the mortgage is not a selling expense.  Paying off the mortgage is not included in reporting the sale of investment property.  The purchase price and the sales price are used in determining the net gain/loss.  The payoff of the  mortgage is handled at closing.

These are expenses that are deductible as expenses of sale of investment property.

What expenses are deductible when selling an investment property?

Unlike owners of a primary residence, real estate investors can deduct fixing up expenses when an investment property is sold.

Other Expense Deductions When Investment property is Sold:

• Real estate commissions.
• Legal fees.
• Transfer taxes.
• Title policy fees.
• Deed recording fees

Prepaid HOA fees should be reimbursed during closing agreement.

Home warranty and water bills are operational expenses and deducted as an expense against income earned during the year.

See below for instructions on how to report the sale of investment property:

We'll automatically generate and fill out Schedule D when you report 1099-Bs and other capital asset sales:

1. Open (continue) your return if it's not already open.
2. Search for Schedule D and select the Jump to link at the top of the search results.
3. Answer Yes to Did you sell any stocks, mutual funds, bonds, or other investments in 2021?
4. Follow the instructions to enter your capital asset sale(s). We'll also fill out form 8949 if you sold stock.

Please see the links below for more information:

• Where do I enter a 1099-B?
• Where is Schedule D?

If you need further assistance, please reach out to us.

[prynciss]

Hi, thanks so much for your response. To clarify, things like HOA dues, water bills, etc. that were paid at closing should be listed under general property expenses (not under Sales Expenses)? The condo is located in a community with a building and community HOAs so certain things were required to be paid "in advance" of their due date to insure the specific entities remained "whole" (i.e. in case the new owner did not pay these things upon taking ownership of the property). This is how I understand to bucket the expenses listed on my particular Closing Statement. Can you confirm if I'm thinking correctly? Thank you so much!!

Sales Expenses - Real estate commissions, seller credit for misc repairs to be done by Buyer, fee for mobile signing services of documents related to sale

Cost Basis inclusion - title fees, escrow fees, title insurance, deed recording fees

? (not sure where these go) = community enhancement fee, HOA advance payments, home warranty, resale disclosure fee, water bill for period after sale date, county taxes

[prynciss]

Oh! I forgot to mention, I didn't received a 1099-B, only a 1099-S.

[ColeenD3]

You said, "? (not sure where these go) = community enhancement fee, HOA advance payments, home warranty, resale disclosure fee, water bill for period after sale date, county taxes".

If these were rental expenses, meaning incurred and paid during the time you had a tenant or had the property available to be rented, then they are deducted on Schedule E. If they were incurred when the property was vacant for sale, then they are personal expenses and not deductible. Just because you pay something, that doesn't mean it is deductible.

Real estate taxes paid while you owned the property that are not included on Schedule E are added to the basis.

Seller closing costs are made up of several expenses. Here’s a quick breakdown of potential costs and fees:

• Agent commission
• Transfer tax
• Title insurance
• Escrow and closing fees
• Prorated property taxes
• Credits toward closing costs
• Attorney’s fees

[prynciss]

Hi, thanks for trying to help. I get the impression my query is not coming across clearly via the community so I'm going to request live tax advice. For example, you refer to any expenses that took place while I had a tenant. My query indicated that these were expenses that did not take place while I had a tenant but needed to be prepaid for future fees beyond the sale date (per the association rules). I think my situation is a too complicated to understand via type. Thanks anyway!

[territurchek]

We sold an undeveloped parcel of land in Florida in 2022.  We paid real estate taxes on it for 25 years.  Can I add the total amount of paid taxes to the initial cost of the land to use as my cost basis? 

[DMarkM1]

No.  Property/Real Estate Taxes are an expense that is deducted in the year paid.  Those taxes paid generally would have been an itemized deduction on Schedule A in those years.   

If when you purchased the property you paid the seller's real estate taxes (back taxes) and were not reimbursed you would add that amount to your cost basis.  

@territurchek 

[safsurfertax]

Apologize for bumping this....but I'm in the same boat as above poster. I sold vacant land unused and unimproved and solely for investment purposes. What if I did not itemize year after year fed taxes because the standard deduction was more and therefore property taxes and HOA fees (because property located in a gated community) were never used as a deduction. Can I then use those expenses, property taxes and HOA fees unused from previous years, and add them to my cost basis for the vacant land sale?

[DMarkM1]

In most cases, no.  The real estate taxes (or HOA fees) are not added to basis.  Some carrying charges can be added to the cost basis.  However, in the case of property taxes the taxpayer must make an election each year to add the taxes to the capital account; the election is only good for the tax year the election is made for.  The election is made by attaching a statement such as " For tax year _____, taxpayer hereby elects under Code Section 266 and IRS Regulations 1.266-1 to capitalize, rather than deduct, property taxes and mortgage interest on the [address of property] vacant lot."