Assignment Fee - Deductible or Need to Be Capitalized

[Larry Fried]

So, we bought a distressed home and rehabbed it, now about to rent.  I understand the purchase and rehab cost have to be capitalized and minus land value, depreciated over 27.5 years.

My question is one of the assignment fee paid to the individual who got the property under the contract and brought us the deal.  The fee was paid entirely outside the transaction for purchase of the property.  So, I am wondering, can that assignment fee be counted as a cost of doing business and deducted in full for the year.  In other words, not count it as part as part of the capitalized cost?

[Michael Plaks]

@Larry Fried

If the fee was specifically for this property, then it is not grey. It is black: part of the acquisition costs aka tax basis. Depreciated, not deducted. It does not matter if it was paid outside the closing. Some people would try to conceal it, hiding it under marketing or something like that. Such "creative reclassification" is basically cheating.

1099 is a separate issue. Yes, you should issue a 1099 for this. In your case, combine it with all other fees paid to your PM.