Rental Expenses versus Passive Activity Losses (PALs)
Question: I purchased a rental property last year. What closing costs can I deduct?
The only deductible closing costs are those for interest, certain mortgage points, and deductible real estate taxes.
Other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including:
- Abstract fees
- Charges for installing utility services
- Legal fees
- Recording fees
- Transfer taxes
- Title insurance
- 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).
- Publication 17, Your Individual Income Tax for Individuals
- Publication 527, Residential Rental Property
- Publication 535, Business Expenses
Category: Sale or Trade of Business, Depreciation, Rentals
Subcategory: Rental Expenses versus Passive Activity Losses (PALs)