You Bought A Rental Property – What Can You Deduct?

Michael Lodge

by Michael Lodge

Since our firm deals in real estate tax and we have a real estate division, we get over the course of the year many questions by people buying real estate for income purposes –rental properties.

QUESTION:  I purchased a rental property last year.  What closing costs can I deduct?

So let’s talk about the deductions that can be taken on your tax return for this income producing property.  Generally, deductible closing costs are those for interest, certain mortgage points, and deductible real estate taxes.

Many other settlement fees and closing costs for buying the property become additions to your basis in the property and part of your depreciation deduction, including:

  • Abstract fees
  • Charges for installing utility services
  • Legal fees
  • Recording fees
  • Surveys
  • Transfer taxes
  • Title insurance
  • Any amounts the seller owes that you agree to pay (such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions).

Now the list above most people think they can deduct those items, but the true real world is that they get added back to the basis of the property.

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