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Category: Tax Questions

Closing Cost Deduction

The closing statement to a real estate purchase contains many potential tax deductions.  Treatment of closing statement line items differ depending on whether the property is business (rental) property or used for a personal residence.

Below is a summary of a typical tax treatment of major line items of the often used 2 page HUD-1 closing statement.  However, there may also be certain items that are treated differently depending on your particular situation.

A notation of 'Basis' refers to costs that become part of the total capitalized cost of the property and not currently deductible, however, these costs can be deducted at the time of sale, or earlier via depreciation if they relate to rental property.

Deductible items are in bold.  Nondeductible items are in red.  If the item is not coded, in most cases, it it just added to the Basis of your home.

NOTE: How you treat each item also depends on whether the home is your Personal Residence (left column) or if it is a Rental Property (right column).

HUD-1 Line #Closing Statement DescriptionTax Treatment - Personal ResidenceTax Treatment - Rental Property
101Contract Sales PriceBasis - is relevant if property
is later sold or rented
Basis - building portion
eligible for depreciation
102Personal PropertyBasis - is relevant if property
is later sold or rented
Basis - eligible for accelerated depreciation
103Settlement ChargesSee lines 700-1305 belowSee lines 700-1305 below
104-105MiscellaneousVariesVaries
106City/town taxes
(See line 210 below)
Deductible as itemized deduction
on Form 1040 schedule A
Deductible as rental expense
107County taxes
(See line 211 below)
Deductible as itemized deduction
on Form 1040 schedule A
Deductible as rental expense
108Assessments
(See line 212 below)
LID assessments are part of Basis, other assessments are typically non-deductible.LID assessments are part of Basis,
other assessments are typically
deductible.
109-112MiscellaneousVariesVaries
210City/town taxes
(See line 106 above)
This credit reduces deductible taxes
on line 106 above
This credit reduces deductible taxes
on line 106 above
211County taxes
(See line 107 above)
This credit reduces deductible taxes
on line 107 above
This credit reduces deductible taxes
on line 107 above
212Assessments
(See line 108 above)
This credit reduces assessments
on line 108 above
This credit reduces assessments
on line 108 above
213-216MiscellaneousVariesVaries
700-703Sales & Realtors CommissionsBasisBasis
801Loan Origination FeeDeductible as itemized deduction ('points') on Form 1040 schedule AAmortized over term of mortgage
802Loan DiscountDeductible as itemized deduction ('points') on Form 1040 schedule AAmortized over term of mortgage
803Appraisal FeeBasisBasis
804Credit ReportNon-deductibleBasis
805Inspection FeeBasisBasis
806Mortgage Insurance FeeNon-deductibleAmortized over term of mortgage
807Assumption FeeNon-deductibleAmortized over term of mortgage
808-811MiscellaneousVariesVaries
901Prorated InterestDeductible as itemized deduction - this interest typically included in year end interest statement (Form 1098)Deductible as rental expense - this interest typically included in year end interest statement (Form 1098)
902Mortgage InsuranceNon-deductibleAmortized over term of mortgage
903Hazard InsuranceNon-deductibleDeductible as rental expense
904-905MiscellaneousVariesVaries
1001Hazard InsuranceNon-deductibleReserves - deductible when
paid from escrow
1002Mortgage InsuranceNon-deductibleReserves - amortizable when
paid from escrow
1003City property taxesReserves - deductible as itemized deduction when paid from escrowReserves - deductible when
paid from escrow
1004County property taxesReserves - deductible as itemized deduction when paid from escrowReserves - deductible when
paid from escrow
1005AssessmentsVariesVaries
1006-8MiscellaneousVariesVaries
1101Settlement FeesBasisBasis
1102Abstract or title searchBasisBasis
1103Title ExaminationBasisBasis
1104Title Insurance binderBasisBasis
1105Document PreparationBasisBasis
1106Notary FeesBasisBasis
1107Attorneys FeesBasisTypically part of Basis, if tenant related may be amortized over term of lease(s)
1108-1110Title InsuranceBasisBasis
1111-1113MiscellaneousVariesVaries
1201Recording FeesBasisBasis
1202City/County tax stampsBasisBasis
1203State tax/stampsBasisBasis
1204-05MiscellaneousVariesVaries
1301SurveyBasisBasis
1302Pest InspectionBasisBasis
1303-1305MiscellaneousVariesVaries
The above table summarizes tax treatment to buyers of properties - for sellers, these costs (including remaining Basis) are deducted at the time of sale, with the exception of costs that are specifically noted as non-deductible.  Of course, capital gains may not be recognized if the property is a personal residence qualifying for the $ 250,000/$ 500,000 capital gain exclusion, or a rental property disposed of via a tax free exchange.


Last Updated: 10/29/2014


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