Question on entering Escrow fees

[goyal_raj]

I am filling details for my rental townhouse that i bought in 2023. Heading on the page is 'Enter Escrow fees' and it says enter any fees you paid while buying.
Heads are:
Abstract and Recording fee
Legal fees/Title search, Doc preparation
Land surveys
Transfer or Stamp taxes
Expenses you paid for the seller

i paid some fee to my mortgage lender on loan application, then application and underwriting fee- where should it go?
i paid some HOA capital contribution and HOA statement fees- where should it go?
i paid for property inspection- where should it go?
I added some appliances and fixtures to the house before giving on rent. Also bought warranties for them. Where should i report those? I would want them to be added to the cost of the house ideally.

While i paid some money in escrow for HOA, insurance, property tax but that I entered under the expenses section so i am not adding them here. IS that right?

My builder gave me some credit if i took a loan from their own company. If not, there was no credit. I used that credit to purchase points when buying the loan. It did not lower my house price . Where should they go? should they be reported under seller paid points section? I did not get any financial benefit as they quoted me a high rate and then used points to bring the rate to the market level. The lender Discount Point Fee disclosure says - "There are a total of 2.650 discount point(s) on this loan, which may be paid by the borrower, seller, lender and/or third party. You are paying 1.327 of the 2.650 discount points." Should i report 1.327 under Seller paid points?

In the subsequent sections, it asks for Land cost under Property TAx values and I saw that my property tax statement has no mention of land cost. My home insurance of type condominium insurance also does not list it. How do i get it? It is a townhome.

Finally, this house is in the name of a Revocable TRust for which I am the beneficiary. Do I have to report the income/expenses/cost any differently than owning it as an individual?

Sorry for the lond list.

Thanks in advance.

RG

[MonikaK1]

The amounts you should enter as "escrow fees" are nonrecurring (one-time) closing costs related to the escrow. These costs are considered as part of purchasing the property and you can add them to your cost basis.

Costs paid through escrow that are otherwise deductible expenses for the current year, such as property taxes, interest, and HOA fees (for a rental property) are reportable as rental expenses.

See this IRS FAQ page for more information.

[goyal_raj]

Thanks for your reply.

Not everything is paid via escrow though. There are expenses on closing e.g.

i paid some fee to my mortgage lender on loan application, then application and underwriting fee-
i paid some HOA capital contribution and HOA statement fees- 
i paid for property inspection
I added some appliances and fixtures to the house before giving on rent. Also bought warranties for them.

Where should i report the above to add to the basis? I would want them to be added to the cost of the house ideally.

While i paid some money in escrow for HOA, insurance, property tax but that I entered under the expenses section as these are recurring expenses. IS that right?

And where should i enter the points paid on the loan?

[goyal_raj]

Thanks for your reply.

I entered the purchase price and then various amounts under escrow fees and then added the points paid (including points purchased from lender, loan application fees etc), entered Land value as an approx value of 20k as it is a townhouse and the land value is not known. The next page 'Depreciation Results' says that the depreciation shall be zero over the next 27.5 years. Why would it be zero? It is a rental property that i bought in 2023.

Did i make any mistake?

When i enter zero as land value, it does not allow me to move forward.

Please help.

Thanks,

[MonikaK1]

Enter the building and the land as two separate assets in TurboTax. Land is not depreciable. Add up all of the acquisition costs that are part of the basis of the property (purchase price and nonrecurring closing costs as explained before), and allocate the acquisition costs between the land and the building as a percentage of the total value of both. 

The relative amounts for land and improvements (building) shown on a real estate tax bill are often a good guideline for determining the allocation of basis between land and building.

If you purchased appliances separately, you can list them as separate assets as well, or they can be deducted as expenses if they each cost less than $2,500.

Also, I noticed you mentioned you are the beneficiary of a trust that owns the property. In that case, the rental activity should be reported on the trust tax return, Form 1041. Form 1041 is not part of TurboTax for individuals, but is available in TurboTax Business.

The trust return would then generate Form K-1 to you to reflect the income you received after a reduction for the expenses, which you would then enter on your personal tax return. 

You may wish to obtain legal advice about this situation before proceeding further, especially if you are not familiar with the terms of the trust.

See the discussion in this thread for examples.

[goyal_raj]

Thanks for your reply.

I am not sure i got the part about 'two separate assets'. When i enter the basis for the property it makes it compulsory to add the land price so I cant get away with it. Irrespective of what i put for land it should depreciate my property as it has all the details for the basis. Any reason why it would not do so?

My property tax bill does not talk about any separate land cost at all. All it gives me is the tax amount.

For the trust, it is a Revocable Trust and in some other replies I was told that I do not need to fill any extra forms for a revocable trust for which I am the beneficiary. Is that right? And I am green card holder, not a citizen.

Thanks,

[RobertB4444]

By putting in the land cost you are segregating that portion of what you paid for the property as not depreciable.  That portion will remain intact up until you sell the property so even if you completely depreciate the building you will still have some value left.

If the trust earns money then it has to be reported on a tax return.  If it is reported on your personal tax return then no further documents are required.

@goyal_raj