How do deductible expenses differ between buying and selling a home?

[jmarenus81]

I have been familiarizing myself with the tax rules associated with selling a rental property.  I understand the rules around cost basis and how to calculate any deduction or additional tax liability based on the sale price.  The part I question is regarding fees and taxes, such as title, state/recording fees, etc.  It seems that most fees and closing costs would be tax-deductible.  When I first purchased my home, I only remember things like prepaid property taxes and points could be deducted.  As the seller, it seems like I am able to deduct most fees, where as a buyer I could not.  Is my understanding accurate?

[Coleen3]

Unfortunately, no. The only items that are deductible are mortgage interest and property taxes. Any other closing cost is added to the basis of the property.

Other settlement fees and closing costs for buying the property become additions to your basis in the property. These basis adjustments include:

    * Abstract fees,

    * Charges for installing utility services,

    * Legal fees,

    * Recording fees,

    * Surveys,

    * Transfer taxes,

    * Title insurance, and

    * Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

From Pub 530:

Nondeductible payments.

You can’t deduct any of the following items.

• Insurance, including fire and comprehensive coverage, mortgage insurance, and title insurance.

• Wages you pay for domestic help.

• Depreciation.

• The cost of utilities, such as gas, electricity, or water.

• Most settlement costs. See Settlement or closing costs under Cost as Basis, later, for more information.

• Forfeited deposits, down payments, or earnest money.

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

[jmarenus81]

Would adding in the closing costs essentially decrease the capital gains tax amount?

[jmarenus81]

Would adding in the closing costs essentially decrease the capital gains tax amount?

[Coleen3]

Yes.