Is paying off a mitigated lien to the city a tax deductable expense?

3 Replies

I am in the process of purchasing an REO property with a number of violations

by a previous owner accumulated over time (years) to a very large sum. As of right now it is about 340K, and by the time I close it will be 350K.

There is an amnesty program from the city that once the new owner takes possession, if he and she applies for permits to clear old violations, the fines are stayed (no longer building up), permit fines are eliminated, and once the final inspection is completed and all violations cleared, the total fines will be reduced to 5% for owner occupants and 10% for investors. That is still a heavy fine at 10% of 350K.

My question is - is such a payment to the city to clear violations and liens tax deductable as an expense of the property? or is it somehow a number that increases the property's effective cost basis?

I'm thinking it's acquisition costs, like closing, and goes to basis. But that's just a WAG.

Wayne, I am not sure either. Is it still an acquisition cost if it's not settled at closing? This is after the fact, super priority, and dealt with by the new owner.

May be it's not acquisition cost nor expense, may be it's a whole different animal.

Hopefully the tax experts are recovered from their deadlines and can weigh in.


Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here