|Summary of Tax Treatment for Real Estate Closing Statement Items|
|Expense Item||Personal Residence
or Second Home
|Mortgage or Land Contract Payoff||non-deductible||non-deductible|
|Mortgage/Land Contract Interest||itemized deduction||deduct - business exp.|
|Abstracting/Title Insurance/Tax History||expense of sale ||expense of sale|
|Real Estate Taxes Paid at closing||itemized deduction||deduct - business exp.|
|Real Estate Taxes Credited from Purchaser||reduce deduction or increase income *||reduce deduction or increase income *|
|Special Assessments [payoff]||full assessment (not balance) increases basis||full assessment (not payoff) increases basis|
|Water/Sewer costs||non-deductible||deduct - business exp.|
|Water/Sewer escrow||non-deductible||non-deductible (deduct final bill amount)|
|Title Insurance||expense of sale ||expense of sale|
|Revenue Stamps||expense of sale ||expense of sale|
|Recording Fees||expense of sale ||expense of sale|
|Commission||expense of sale ||expense of sale|
|Purchaser Closing Costs||expense of sale||expense of sale|
|Expense Item||Personal Residence or Second Home||Business or
|Casualty Insurance Premium||non-deductible||deduct - business exp.|
|Atty. Opinion/Title Insurance - mortgage policy||non-deductible ||deduct - business exp.|
|Atty. Opinion/Title Insurance - owner policy||Basis||Basis|
|Recording Fees - deed||Basis ||Basis|
|Escrow (Prepaid items)||non-deductible||non-deductible|
|Appraisal Fee - mortgage||non-deductible ||amortize over mtg life |
|Document Preparation||non-deductible ||amortize over mtg life |
|Commitment Fee||itemized deduction IF amount represents pre-paid interest. non-deductible otherwise ||amortize over mtg life |
|Interest Adjustment||itemized deduction (however this is generally included in the 1098 received year end)||deduct - business exp.|
|Pro-Rata Taxes||itemized deduction||deduct - business exp.|
|RE Transfer Tax (new builds)||Basis||deduct - business exp.|
|Mortgage Survey||non-deductible ||amortize over mtg life |
|Closing fees||non-deductible ||amortize over mtg life |
|Loan Discount Points||itemized deduction - if re-finance or second home, must amortize||amortize over mtg life |
| costs that represent acquisition of the mortgage must be amortized
over the life of the mortgage
some expenses not otherwise deductible may become deductible if the sale/purchase is part of a move that is deductible. Note: the 1993 tax law changes end this exception after 12/31/93.
* refunds of amounts deducted in a prior year must be included in income in the year the refund is received, subject to "tax benefit rule" limitations
"Itemized Deduction" means that the amount may be deducted on Schedule A of Form 1040 as an itemized deduction if the taxpayer otherwise qualifies to itemize deductions.
"Deduct - Business Exp." means that the amount will generally be considered an ordinary and necessary business expense if the real estate was used in a business or rental activity. If the real estate is held for investment only, this does not apply
"Basis" means that the amount is part of or added to basis and used to reduce gain or increase loss upon sale.
"Expense of sale" means that the amount is part of expenses of sale and serves to reduce the gain or increase the loss upon sale.
"Amortize over mtg life" means that a ratable portion of the amount is deducted each year over the life of the mortgage. Any remaining amounts are deducted in full when the mortgage is fully paid.
"non-deductible" means that this item does not affect taxes at all.
Special rule for your personal residence
We recommend that documents which reflect cost basis, additions to basis (items on the reverse plus property improvements) as well as documents relating to the selling price and selling costs of property be kept forever, but in no case less than six years following the final sale and disposition of the property to which they relate.
For an in-depth individual consultation contact:
Young, Heck & Zimbler, LLC
The above chart and discussion are summaries of complex aspects of tax law. Tax laws change. Your individual circumstances may result in a tax treatment which differs from the above summary. Contact your tax advisor before entering into a property transaction to ensure that the structure of the transaction provides the expected tax benefits. These summaries do not consider any individual or special circumstances. While the information is believed to be accurate at the time of publication, Young, Heck & Zimbler, LLC, its officers or employees make no guarantee or warranty, express or implied as to the accuracy of the information presented and accept no responsibility for errors or omissions in the above nor for any damages, direct or consequential arising from reliance on the information contained herein.