I just bought my first rental house, and I am not sure how to account for expenses for first year accounting. I understand how expenses are calculated for 2nd year. I have been researching and have read mixed results. Not sure if these are depreciated or amortized over the life of the 30 year loan?
Specifically, how do I account for the following:
-Lender Fees (flat rate/no points)
-Title Company Fees & Title Policies
-Taxes and Government Fees
-City and County Taxes
-Initial funding of escrow account for taxes/insurance
Hi @Andrew McAfee ,
You will probably want to meet with your CPA (or hire one if you don't have one) to discuss this and other tax issues related to your new rental business.
Most of those expenses end up being capitalized (added to your property basis). You would then allocate your property basis between the land and building, and depreciate the building costs over 27.5 years.
The city and county taxes, if they are property taxes and not any sort of transfer fee, are immediately deductible.
The funding of the escrow account is a non-event for tax purposes. It is essentially the same as putting money into your own bank account. You will be able to deduct the taxes and insurance as it is paid.
Hope this helps.
Your acquisition costs are on your settlement statement, previously called the HUD-1. Any repairs, management costs, taxes, etc are tax deductions. Keep good records on each property individually.
- Everything specifically linked to obtaining the loan is amortized. From your list, it's lender fees and appraisal.
- @Brian Schmelzlen explained the escrow.
- city /county taxes are a deduction for your portion of the year
- the rest is capitalized and depreciated
That said, it's still best to run it by a competent REI accountant. There're too many opportunities to shoot yourself in the foot while processing closing statements.
Sometimes home insurance is also paid at closing. That should be currently expensed.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.