Enter all fees paid when bought property, rental property

[dcisfun5]

Hi, I turned a condo property I lived in for 5 years into a rental property last year 2023.

TT states under ESCROW FEES to enter all fees paid when the property was bought. 

The categories TT lists do not really match well with our settlement papers. For example, where it says "Expenses we paid for the seller" what would that be? We had a number of items we paid for:  mailings, settlement fees, post closing fees, appraisal fees, reports, etc. I do not understand where these would go? Is the important thing to just make sure the number adds up? Is this number supposed to reflect all fees paid for settlement or just certain ones?

[MarilynG1]

No, the important thing when setting up a Rental Property Asset is that you start with the correct Cost Basis, as Depreciation each year is one of your largest deductions.

Starting with the amount you paid for your condo (which can include some settlement costs on your HUD-1 statement), add the value of any Improvements you made since you bought the property and allocating a % of the total to Building and to Land (if that applies).

For example, if your bottom line on your settlement statement shows you paid 100K for your condo, (this would include all the costs you paid) and then you added a new roof for 10K a couple years later, your Cost Basis is now 110K to start depreciating your rental.  Don't worry about categorizing every expense from your settlement statement into TurboTax.  Here's more info on Home Purchase Costs.

If your current tax bill shows your building value at 100K and your land value at 10K, then land is 10% of your total value (no matter how the actual values may change). 

Here's more info on Depreciation of Rental Assets and What Kind of Rental Property Expenses Can I Deduct.

@dcisfun5 

[dcisfun5]

Ok thank you.

Ok thank you. 

So we dont have a HUD because our finance company said they stopped using them- we have a Closing Disclosure. We paid $420,000 for the condo and there was a total of $13,740.23 in closing costs. It broke down the closing costs as Loan Costs of $4,049.90 which includes all the title fees, recording, etc and then Other Costs which includes more recording, tax stamps, title insurance and HOA dues. How do I know which costs are included? Is there a list I can refer to?

Or are you saying all total costs are included? So lets assume we didnt make any improvements to keep it simple, would the cost basis be $420,000 contract price plus the total closing costs of $13,740.43= $433,740.43?

[dcisfun5]

Sorry forgot to minus the land value first. Land value is showing $120,310 for 2023.

[DianeW777]

Yes, here is the list of closing costs and loan fees for example.  As far as entering your condo, if land is part of your cost then enter the combined total for the condo asset, then the land portion.  TurboTax will reduce the total by the land value before calculating depreciation.

Do not use any mortgage interest, real estate or school taxes, local or city taxes.  Transfer tax is a separate and identifiable expense of purchasing a property.

• See IRS Publication 551 (pages 2 & 3)

Loan charges - Loan charges are part of the loan and not added to cost basis

• Application fees
• Lender fees
• Appraisal Fee
• Inspection Fee
• Condo Questionnaire
• Credit Report
• Debt Report

You can't include in your basis the fees and costs for getting a loan on property.

Government Recording and Transfer Charges- these are added to the cost basis of the property

• Recording fees
• Title Charges
• Lenders Tile Policy
• Settlement or Closing Fee
• MLC  - Assuming it means Municipal Lean Certificate
• Title Exam
• Owners Title Insurance

You can include these closing costs and add them to the cost basis of the property as noted above.

@dcisfun5 

[Edited: 03/16/2024 | 10:35 AM PST]