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Capitalize on Property Settlement Costs
by Kevin McCormally

I bought a residential rental property in 2004. How much of the nearly $4,000 in settlement charges can I add into my capitalized cost?

Here's an overview of fees: Appraisal fee, tax service fee, flood cert, commitment fee, title examination, insurance binder, title insurance, courier fees, endorsement charges, recording fees, survey fee, postage fees.

I believe all those costs can be added to your capitalized cost of the property.

Here's what IRS Publication 527 says:

Settlement fees and other costs. Settlement fees and closing costs that are for buying the property are part of your basis in the property. These 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.

Some settlement fees and closing costs you cannot include in your basis in the property are:

1. Fire insurance premiums,


2. Rent or other charges relating to occupancy of the property before closing, and


3. Charges connected with getting or refinancing a loan, such as:

• Points (discount points, loan origination fees),


• Mortgage insurance premiums,


• Loan assumption fees,


• Cost of a credit report, and


• Fees for an appraisal required by a lender.

Also, do not include amounts placed in escrow for the future payment of items such as taxes and insurance.

Expenses paid to obtain a mortgage. Certain expenses you pay to obtain a mortgage on your rental property cannot be deducted as interest. These expenses, which include mortgage commissions, abstract fees, and recording fees, are capital expenses. However, you can amortize them over the life of the mortgage.