Calculating Cost Basis for Rental Property

In 2005 I converted my home to a rental propety. In preparation for preparing my taxes this year, I need to establish my cost basis for the property.

I paid $160,000 for this property. However, I have read in multiple sources that I can add some of the closing costs to the cost basis of my property. Mainly, I can add transfer taxes, title insurance, attorney fees, survey costs, and termite inspection fees to the basis. Here is what I have rounded up so far from my HUD Closing Statement:

HUD Line #

Description

Amount

 

Purchase Price

$160,000.00

1107

Attorney Fees

$ 475.00

1105

Document Prep Fees

$ 150.00

1108

Title Insurance

$ 290.00

1301

Survey

$ 350.00

1201

Recording Fees

$ 82.00

1202

State Tax/Stamps

$ 320.00

 

Termite Inspection Fee

$ 50.00

 

Cost Basis from Closing

$161,717.00



I still haven't found a clear answer as to whether a home inspection is part of the cost basis. I have read that a termite inspection fee is part of the cost basis so I would think a home inspection would be as well. However, I have found nothing that suggests a home inspection can be included as part of the cost basis.

Regardless, I have added an additional $1,717.00 in my cost basis for this property from closing costs.

Update: It looks like I can add home inspection expenses of $325 to my cost basis. The new total is $162,042.

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Comments (5)


DATE: 5:34 PM
Home inspection costs are "incurred in buying real estate should be added to your basis". This comes straight from 2006 U.S. Master Tax Guide. Keep in mind that your basis is just the building, not the land. I believe you will have to value your land and subtract that from what you have already calculated. Land cannot be depreciated. But the land is still part of the rental property, just the value is undepreciable property.

DATE: 6:43 PM
Awesome! Thanks for the find. I'll add my home instection costs to the cost basis for the property. From what I am reading what I should do is 1) calculate my cost basis 2) determine basis of personal property included in sale, then 3) apply improvement ratio to remaining cost basis to determine building value. This way I can depricate both the personal property and building. I'm still crunching the numbers and will post them once I work through everything.

DATE: 8:53 AM
Assuming the rule that money doubles every 10 years at 7% or 7 years at 10%, if you did nothing else, didnt touch it and were appropriately allocated you should be able to hit your 2mm before 65. Congratulations !

DATE: 5:37 PM
Can you still deduct your mortgage interest on this property? does it matter if you own another property that you live in?

You can't deduct the mortgage interest for a rental. Once you make it a rental it becomes a rental expense. You can only deduct mortgage interest on primary residence. As far as cost basis I believe it's on your 1st tax bill when purchasing house that is now a rental minus land, because you cannot depreciate land.

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