Tax treatment of closing costs on a residential property

[SouthBayLA Realty]

After perusing various IRS publications, I'm still scratching my head about the treatment for title insurance charges. In California, the practice is for the buyer to pay a lender's policy while the seller pays for an owner's policy. Various IRS publications keep referencing that a buyer should add the cost of an owner's policy to the cost basis of the property. How do you square this? Also, I'm assuming that the seller can deduct the cost of the owner's policy as a selling expense. Correct assumption.

[tagteam]

With respect to closing costs for the buyer and the list of same (appearing in various places), you can add the costs outlined to your basis provided you actually paid them.

If the seller paid the costs, you cannot add them to your basis.

https://www.irs.gov/publications/p530#en_US_2021_publink100011939

Items added to basis.

You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.