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Hi, the best way to give you this, is to tie it to the HUD-1 statement line ... to avoid overlap and show where some things need to be adjusted (amount paid by seller, fo example)
101. Contract sales price – This is the purchase price of the property and must be depreciated
By the way, even if you are buying a condo, you must allocate part of this purchase price to the land that the house, building or condo sits on. The cost allocated to the land may not be deducted, depreciated or amortized. The amount that should be allocated to the land will vary based on the size and location of the property, but it is common practice to allocate 10% to 25% of the purchase price to the land.
Adjustments for items paid by seller in advance
200. Amounts Paid By Or In Behalf Of Borrower
These amounts are all included in the purchase price on lines 101 and 102 above. The amounts on line 201, 202 and 203 do not get separately deducted or amortized, but the interest paid over the life of the mortgage is deductible when paid.
Adjustments for items unpaid by seller
These amounts reduce any deductible amounts on lines 106, 107 and 108 above.
Now lets go to page 2
700. Total Sales/Broker’s Commission – This is paid by the seller and has no tax effect on the buyer.
800. Items Payable In Connection With Loan
These items must be amortized over the life of the loan.
TIP: Many people think that these amounts (usually referred to as points) are a current tax deduction. However, the only time that points are allowed as a current deduction is if the points are paid in connection with the purchase of a primary residence. Points paid in connection with the purchase of an investment property or paid on a refinancing of a personal residence or an investment property must be amortized over the life of the loan.
900. Items Required By Lender To Be Paid In Advance
TIP: This amount will usually appear on Form 1098 that you will receive at the end of the year showing how much interest you paid during the year. However, not all lenders include this amount on the form so be sure to check with your lender to find out.
1000. Reserves Deposited With Lender
These amounts are deposited (escrowed) with the lender and are deductible when they are disbursed from escrow by the lender. These amounts paid from escrow should be reported on your Form 1098 at the end of the year.
1100. Title Charges
All of these amounts are added to the cost basis of the property (line 101) and must be depreciated.
1200. Government Recording and Transfer Charges
These amounts are added to the cost basis of the property (line 101) and must be depreciated.
1300. Additional Settlement Charges
Finally, there may be other miscellaneous closing costs that you may pay in connection with buying an investment property. While the tax treatment of these amounts may vary, the general rules of thumb are that the costs associated with operating the property (such as real estate taxes and insurance) are deductible as current expenses, the costs associated with obtaining the mortgage (such as lender fees and mortgage application fees) must be amortized over the life of the loan and the costs associated with purchasing the property (such as title charges and recording fees) must be added to the cost basis of the property and depreciated.
On the roof, that IS considered part of the property and must be depreciated over 27.5 years
Here's the IRS guidance on this:
I still don't see you coming into the chat here, so I'll move us to the "Q&A" mode, where you can ask any follow-up questions
Let me know ....
Sorry for the tardy response. I finally got a chance to pull out my closing statement and walk through your answer. Lots of detail, which I appreciate, but it sounds like the gist of it is that most of these expenses need to be amortized.
Thanks for your help!!