Closing Costs - Tax Question (with a twist)

[Michael Higgins]

Cannot find the precise question in the forum so, I will throw it out there.  When we closed this year on a long term rental property (after rehab) we bundled the closing costs into the loan.  Since the closing costs were not out of pocket, how is this handled from an accounting/tax perspective?  Also, part of the closing costs include property tax payment.  So, we are looking for feedback, thoughts and learnings from the forum - and of course we are consulting a CPA.  

[Greg Scott]

This would be a piece of cake for a CPA or a good bookkeeper, but here is quick description.

- Property taxes that are realized (meaning you already owe them for the time period you owned the property) are expensed

- If you have any property tax escrows, the escrowed part should go to the balance sheet until the tax is incurred and then it is expensed.

- Rehab included in the loan.  The most precise way to do this would be to add the escrows as an asset.  When the rehab is done, any amounts paid by the bank convert escrowed rehab asset into your building asset.  (You would need to update your depreciation schedules accordingly.)  The entire loan itself is added as a liability at purchase.

[Michael Higgins]

I appreciate the thoughtful response 

[Basit Siddiqi]

Costs paid for at closing fall into one of 3 bucks
1. Currently expensed
2. added to basis
3. Neither(Loan, escrow, etc)

Best of luck