i did some research and got various conflicting answers. maybe i can get a corroborated answer here (please link the source if possible)
what is the recovery period for the closing costs of a residential rental (1040 Sched E property)?
what is the recovery period for the closing costs of a commercial rental (1040 Sched E SMLLC property)?
I'm not a tax guy and absolutely hate the topic, but I wouldn't think they'd have any amortization period. I always looked at them as just my cost basis into the property.
If I buy a place for $100k and had to pay $5k in other fees, I figure I paid $105k. If I later sell for $120k (and say I have $5k in costs in the sale), then I just made $10k. [(100+5) - (120-5)]
But then again, I normally do things the way they make sense to be done which is sometimes different than the way the rules say to do things so take my thoughts on the matter accordingly.
Here is a link with more info: http://www.irs.gov/publications/p527/ch02.html
I'm a finance major in college and next chapter we are getting into PP&E. From what I gather from reading the highlights of the material, acquisition costs are added to the cost of the land; so you are not amortizing separately.
Typically they are amortized over the course of the loan.
27.5 years for residential
39 years for commercial.
You will add it to the cost basis of the property.
As @Cody L. said look at IRS Publication 527:http://www.irs.gov/publications/p527/ch02.html
Also, I hope this link still works it is a cheat sheet for cost basis.
Some Depreciation reminders:http://www.biggerpockets.com/files/user/StevenHamilton/file/residential-depreciation-chart
Does it increase the value of the home?. If Yes: Depreciate, If NO: if it a structural element or increase the life of structural elements? If Yes: Depreciate. If NO: Does this replacement decrease operating costs or add new features? If Yes, Depreciate. If NO, expense.
I don't recall where I found this list but this might help. This is a list of what is typically a capital improvement. This excludes "repairing" the item. Replacement is the issue.
Heating & Air Conditioning
Central air conditioning
Lawn & Grounds
Storm windows, doors
Soft water system
Pipes and duct work
This is not a finished list this is just an example. There can be other items that must be depreciated.
If you have more questions feel free to ask.
thanks everyone. i found a very good answer. Closing costs is an umbrella term for various line items on the HUD-1. Each line item may have a different tax treatment.
This link summarizes it best:
Never saw that part of the question. They are typically amortized over the rate of the loan or added to the acquisition basis. In some cases they can be deductible.
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