Mortgage HK cash incentive treatment for rental cost base

[VolvicNaturelle]

We have a mortgage in Hongkong through HSBC with a small 'cash incentive' tied to it - i.e., upon closing we got a small amount of money -- which happened years before we moved to the US. When locking in the cost basis for this property now used as a rental - is that cash incentive to be taken into account? E.g., effectively reducing the settlement/closing costs? 

Reason I'm bringing this up in particular is that I'm trying to tee up what our CPA did for our cost base lock-in specifically for Settlement & Closing costs. The CPA refuses to provide detailed information on it; and I can simply not reconstruct the number locked in for the purchase price with all the paperwork we provided. Thus, I'm looking through all (partial) amounts of money which had been somewhere in the paperwork and might have been incorporated into that amount. Other ideas could be around prepaid mortgage insurance, fire insurance - which to my understanding should not be in there. 

Thank you for any help

[DianeW777 · Accepted solution]

Yes, an incentive received should reduce the cost of the building when arriving at the cost basis for depreciation.

If as you indicated in your other post, this property was set up under ADS with a mid-month convention (MM), it should be set up on a 40 year recovery because it is foreign property.  This would be 480 months, so using this information with the date placed in service (month), you should be able to do the math to figure out the exact basis the CPA used.  Keep in mind that MM simply means a half a month for the month placed in service and the same for the month removed from service (rental activity).

• Example:  Cost of Building less land = $200,000
  • $5,000 annual depreciation ($200,000/40 years)
  • $2,708 for property placed in service June, 2022 ($5,000/12 x 6.5)

If this figure does not equal the cost basis you calculate, simply change the cost basis if it is significant or leave it as it was for all future returns. You can decide.  Keep all of your documents and tax returns until you dispose of the property through sale.