Question

Rental Property Basis

Forum|Forum|5 years ago
February 13, 2021
1 reply
0 views

I purchased a rental property this year and am working to establish the basis. Most of this is clear EXCEPT whether I can add the costs to the Escrow company to set up the Escrow account. Not the money they hold for taxes and insurance, just the costs to set up the account. These costs are apparently OK to add to the basis when selling a house, so it seems to me that they ought to be included in the purchase basis.

Does anyone have a clear answer on this one?

ColeenD3

The IRS does not specifically say yes or no. The only reference to escrow is highlighted below. My guess would be no.

The following items are some of the settlement fees or closing costs you can include in the basis of your property.

• Abstract fees (abstract of title fees).

• Charges for installing utility services.

• Legal fees (including title search and preparation of the sales contract and deed).

• Recording fees.

• Surveys.

• Transfer taxes.

• Owner's 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.

Settlement costs don't include amounts placed in escrow for the future payment of items such as taxes and insurance. The following items are some settlement fees and closing costs you can't include in the basis of the property.

1. Casualty insurance premiums.

2. Rent for occupancy of the property before closing.

3. Charges for utilities or other services related to occupancy of the property before closing.

4. Charges connected with getting a loan. The following are examples of these charges. a. Points (discount points, loan origination fees). b. Mortgage insurance premiums. c. Loan assumption fees. d. Cost of a credit report. e. Fees for an appraisal required by a lender.

5. Fees for refinancing a mortgage.