Can I claim any of the downpayment or closing costs on my taxes for rental property purchsed in 2006?

Answer 1

Down payment: No

Closing costs: Some of these can serve to increase your cost basis for the property. You can deduct an allowance for depreciation based on the acquisition cost of the improvements (the house, etc.) but not the land. Increasing your basis will increase that deduction very slightly.

The only closing costs that you can use to adjust the cost basis are for non-prepaid items such as loan origination fees, title insurance, transfer and recording fees, etc. Prepaid interest (points) for a purchase money mortgage can be deducted in the tax year that they're paid but do not affect the cost basis for the property.

Prepaid property taxes and homeowner's insurance are just deposits against a future liability. You can deduct the actual taxes and insurance that you paid or were paid on your behalf by the mortgage servicing company during 2006 on Schedule E.