What is deductible on my closing statement?

Posted on Sep 10, 2014

It’s no secret that the real estate market is heating up again. It’s easy to confirm this by the number of cranes I can see from Clark Nuber’s downtown Bellevue office. With the real estate market finally on the rebound, it’s a great time to consider selling or purchasing property.

Spring is the highest residential sales season in the Seattle area, so it’s possible that you have a closing statement filed away in a drawer in your office waiting to be looked at next April. Or perhaps you purchased a business or investment property in 2013 and you’re still waiting to file your extended return. Here’s a guide for you to determine proper treatment of the items you may find on your closing statement.

The buyer of a principal residence may deduct interest, loan origination fees (typically referred to as “points,” also note that the IRS allows the buyer to deduct these even if they came out of the seller’s funds) and real estate taxes. The buyer can also increase their basis in the property for amounts paid to attorneys in connection with obtaining the property, commissions, title fees, survey fees, recording of deed fees, pre-sale real estate taxes, back interest owed by the seller and paid by the buyer, transfer taxes, tax service fees, title policy fees, title insurance and utility service installation.

The seller of a principal residence may deduct interest and real estate taxes. They may also include the following as selling expenses: attorney fees, closing costs, commissions, title fees, survey fees, recording of deed fees, transfer taxes, tax service fees, title policy fees, title insurance and utility service installation.

The buyer of a business or investment property may deduct condo fees, fees paid out of escrow (for utility bills, insurance, etc.), fire/casualty insurance premiums, interest, and real estate taxes. They can also increase their basis for the same items as the buyer of a principal residence. Attorney fees in connection with obtaining the property, closing costs, loan origination fees/points and loan processing fees must be amortized over the life of the mortgage.

The seller of a business or investment property may deduct condo fees, fees paid out of escrow (for utility bills, insurance, etc.), fire/casualty insurance premiums, interest, and real estate taxes. They can also include the same selling expense items as the seller of a principal residence.

Now is a great time to dig out those closing statements and forward them along to your CPA. When you do, feel free to contact a Clark Nuber professional if you have any questions regarding the treatment of items on your closing statement.

© Clark Nuber PS and Developing News, 2014. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

 

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This article or blog contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.

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