Thursday, March 10, 2016

Are Settlement Charges Deductible?

Usually not.

"Settlement or closing costs.   If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.
  The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.
Items added to basis.   You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
  The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
  • Abstract fees (abstract of title fees).
  • Charges for installing utility services.
  • Legal fees (including fees for the title search and preparation of the sales contract and deed).
  • Recording fees.
  • Surveys.
  • Transfer or stamp taxes.
  • Owner's title insurance.
  • Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.
  If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement.
Items not added to basis and not deductible.   Here are some settlement and closing costs that you cannot deduct or add to your basis.
  1. Fire insurance premiums.
  2. Charges for using utilities or other services related to occupancy of the home before closing.
  3. Rent for occupying the home before closing.
  4. Charges connected with getting or refinancing a mortgage loan, such as:
    1. Loan assumption fees,
    2. Cost of a credit report, and
    3. Fee for an appraisal required by a lender."

SOURCE: https://www.irs.gov/publications/p530/ar02.html#en_US_2015_publink100011939

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