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Bought home in 2015. Converted from Primary Residence to a rental in 2022. How to fill in the "Enter Escrow Fees" section based on figures in my Title Settlement Statement

I bought a condo in 2015 and converted it from my primary residence into rental in 2022. 2022 is first year of my condo being a rental. I am trying to fill in the "Enter Escrow Fees" section in TurboTax Premier 2022, but there are only 6 fee types shown, whereas my Title Company Buyer Settlement paper from 2015 has many more fees types, summarized below. Can someone help map the fees on my Buyer Settlement to those 6 fee types in Turbo Tax.
 
::: The 6 fees field available on Turbo Tax Premier :::
  1. Abstract and Recording Fees
  2. Legal Fees, Title Search, and Document Preparation
  3. Land Surveys
  4. Title Insurance
  5. Transfer or Stamp Taxes
  6. Expenses you paid for the seller
:::: The fees from my Title Company Settlement Statement :::
  • recording fee $150 (Maps to #1 above)
  • Notary fee $200 (Maps to #1 above)
  • Certificate of Insurance to Home Owner Association $90 (**What # does this map to? 4?)
  • Escrow Fee to Title company $1100   (**What # does this map to? 4?)
  • Title Charges for homeowners policy $2000 (**What # does this map to? 4?)
  • Home Owners Association transfer fee to update Property Owner's info $300 (**What # does this map to? 5?)
  • Community Enhancement Fee to move into my LA county ($2500) (**What # does this map to? 5?)
  • Loan fees for mortgage (I'm aware that these cannot be added into the cost-basis)
 
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4 Replies

Bought home in 2015. Converted from Primary Residence to a rental in 2022. How to fill in the "Enter Escrow Fees" section based on figures in my Title Settlement Statement

Not all items on a HUD statement are part of the properties cost basis and anything put in the escrow account is one of them.

Bought home in 2015. Converted from Primary Residence to a rental in 2022. How to fill in the "Enter Escrow Fees" section based on figures in my Title Settlement Statement

thanks, from the list of items above, which would typically be "put into" the escrow account so I know that I will not include that figure into computing my cost basis?

Bought home in 2015. Converted from Primary Residence to a rental in 2022. How to fill in the "Enter Escrow Fees" section based on figures in my Title Settlement Statement

Funds  put in escrow accounts pay RE taxes and Insurance ... they are NOT part of the basis of the home which is why the program doesn't ask for them.   Not ALL things on the HUD statement are included in the cost basis of the property.  

Carl
Level 15

Bought home in 2015. Converted from Primary Residence to a rental in 2022. How to fill in the "Enter Escrow Fees" section based on figures in my Title Settlement Statement

Not everything on your closing documents is deductible or reportable on your tax returns. Here's the basics.

- Costs associated with acquisition of the property are added to the cost basis of the property and depreciated over time. The program will ask you for those items. If it doesn't ask, then it's not reported on your tax return. An example would include title transfer fees (sometimes referred to as documentary stamps) paid at the courthouse to replace the seller's name with the buyer's name on the property deed.

 - Costs associated with acquisition of the loan are amortized and deducted (not depreciated) over the life of the loan. Examples of this include property survey fees if the lender required a survey as a condition of loan approval, as well as loan application fees.

 

When escrow is required by the lender (most require it) money placed in excrow is not reported or deductible anywhere on the tax return. Money placed in excrow is *your* money and remains your money until such time the escrow account manager used it to pay a required expense with. Typically, escrow is used to pay for property taxes and property insurance each year. It can be used to pay for other things such as HOA fees. Amounts paid out of escrow may be deductible on your tax return in the tax year a qualified expense is paid from the escrow account. For example, property taxes paid in 2022 from escrow are deductible as a SCH A itemized deduction for personal use property (such as your primary residence) or on SCH C for business use property (such as a commercial storefront property) or on SCH E for rental property that you own.

In case this is your first time dealing with rental property, I've provided the below information for you in case you find it helpful. Understand that when dealing with rental property, absolute perfection on your taxes in that first year is not an option. It's a must. Even the tiniest of mistakes can and will grow exponentially over time. Then when you catch the error years down the road (usually in the tax year you sell the property) the cost of fixing it will be expensive. So if you've got more questions by all means, please ask.

Rental Property Dates & Numbers That Matter.

Date of Conversion - If this was your primary residence or 2nd home before, then this date is the day AFTER you moved out, or the date you decided to lease the property – whichever is later.
In Service Date - This is the date a renter "could" have moved in. Usually, this date is the day you put the FOR RENT sign in the front yard.
Number of days Rented - the day count for this starts from the first day a renter was contracted to move in, and/or "could" have moved in. That would be your "in service" date or after if you were asked for that. Vacant periods between renters do not count for actual days rented. Please see IRS Publication927 page 17 at https://www.irs.gov/pub/irs-pdf/p527.pdf#en_US_2020_publink1000219175 Read the ā€œExampleā€ in the third column.
Days of Personal Use - This number will be a big fat ZERO. Read the screen. It's asking for the number of days *YOU* lived in the property AFTER you converted it to a rental. I seriously doubt (though it is possible) that you lived in the house (or space, if renting a part of your home) as your primary residence, 2nd home, or any other personal use reasons after you converted it to a rental.
Business Use Percentage. 100%. I'll put that in words so there's no doubt I didn't make a typo here. One Hundred Percent. After you converted this property or space to rental use, it was one hundred percent business use. What you used it for prior to the date of conversion doesn't count.

RENTAL PROPERTY ASSETS, MAINTENANCE/CLEANING/REPAIRS DEFINED

Property Improvement.

Property improvements are expenses you incur that Improve, restore, or otherwise ā€œbetterā€ the property. Basically, they retain or add value to the property.

Betterments:
Expenses that may result in a betterment to your property include expenses for fixing a pre-existing defect or condition, enlarging or expanding your property, or increasing the capacity, strength, or quality of your property. An example of a pre-existing condition or defect in this context would be something such as foundation repair (slab jacking) or some other, hidden and costly, anomaly.
Restoration:
Expenses that may be for restoration include expenses for replacing a substantial structural part of your property, repairing damage to your property after you properly adjusted the basis of your property as a result of a casualty loss, or rebuilding your property to a like-new condition.
Adaptation:
Expenses that may be for adaptation include expenses for altering your property to a use that isn’t consistent with the intended ordinary use of your property when you began renting the property. Adding a wheelchair ramp would be an example.

 

Expenses for these types of costs are entered in the Assets/Depreciation section and depreciated over time. Property improvements can be done at any time after your initial purchase of the property. It does not matter if it was your residence or a rental at the time of the improvement. It still adds value to the property.

To be classified as a property improvement, two criteria need to be met:

1) The improvement must become "a material part of" the property. For example, remodeling the bathroom, new cabinets or appliances in the kitchen. New carpet. Replacing that old Central Air unit.

2) The improvement must retain or add "real" value to the property. In other words, when the property is appraised by a qualified, certified, licensed property appraiser, he will appraise it at a higher value, than he would have without the improvements.

There are rules that allow you to just flat-out expense and deduct some property improvements instead of capitalizing and depreciating them, if the total cost of the improvement was less than $2,500. It’s referred to as ā€œsafe harbor di-minimisā€ But depending on the specific situation, this may or may not be beneficial. Just be aware that not every property improvement that cost less than $2,500 qualifies for this. If this interest you, the rules can get complex. So a good place to start reading is on the IRS website at https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations. The stuff on di-minimis starts about one page down.

Cleaning & Maintenance

Those expenses incurred to maintain the rental property and its assets in the usable condition the property and/or asset was designed and intended for. Routine cleaning and maintenance expenses are only deductible if they are incurred while the property is classified as a rental. Cleaning and maintenance expenses incurred in the process of preparing the property for rent for the very first time are not deductible.

Repair

Those expenses incurred to return the property or its assets to the same usable condition they were in, prior to the event that caused the property or asset to be unusable. Repair expenses incurred are only deductible if incurred while the property is classified as a rental. Repair costs incurred in the process of preparing the property for rent for the very first time are not deductible.

Additional clarifications: Painting a room does not qualify as a property improvement. While the paint does become ā€œa material part ofā€ the property, from the perspective of a property appraiser, it doesn’t add ā€œreal valueā€ to the property.

However, when you do something like convert the garage into a 3rd bedroom for example, making a 2-bedroom house into a 3-bedroom house adds ā€œreal valueā€. Of course, when you convert the garage to a bedroom, you’re going to paint it. But you will include the cost of painting as a part of the property improvement – not an expense separate from it.

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