Bought a rental house, does cost basis include the closing costs?

Question

1.I bought a rental house for $164,495.00 in 2006. My closing costs were $1,055.57. The value of the land, as determined by the appraisal district, was $25,000 at the time of purchase. Which of the following is my cost basis? In other words, do the closing costs increase the cost basis?
a.$164,495.00 - $25,000 = $139,495, or
b.$164,495.00 - $25,000 + $1,055.57 = $140,550.57.
c.Neither choice is correct.

Answer 1

Cost basis includes the purchase price and any associated purchase costs.

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Answer 2

This is really an accounting question. I'm not an accountant, but I think your cost basis is what you paid for your home - period. If you make any capital improvements, such as adding a room or a new roof that ads to your cost basis. Your closing cost are deductible annually. I think you need to deduct this over a period of time, not all in one year. I'm not sure what this period of time is. I suggest you go to the IRS web site and look up the answer their. The other alternative is talk to a CPA. If you can afford a rental house, you need to find an accountant that can answer these questions. Actually, you can't afford not to have an account. It will cost you much more not have one than it will to pay the cost for these types of questions.


Good luck

Answer 3

The latter is the amount you can depreciate if it is an income property. I prefer to take the closing costs in the year it occurs if possible. Especially if I have sufficient income to cover all other expenses and the closing costs.

If you choose to depreciate that amount, it will take you 27 years if it is a residence and 30 if it is commercial property, to recover those costs.

If you are searching for your cash basis, that is the amount you have put as a down payment. Your basis will change monthly as you pay your mortgage down.

Answer 4

The answer to your question should come from a CPA, but to answer it, your cost basis is the cost of the property plus any closing costs ($164,495 + $1,055.57 = $165,550.57)