11.2 Sale or Trade of Business, Depreciation, Rentals: Rental Expenses versus Passive Activity Losses (PALs)
I purchased a rental property last year. What closing costs can
I deduct?
The only deductible closing costs are those for interest, and deductible real estate taxes. Other settlement fees and closing costs for buying the property become additions to your basis in the property. These basis adjustments include:
- Abstract fees,
- Charges for installing utility services,
- Legal fees,
- Recording fees,
- Surveys,
- Transfer taxes,
- Title insurance, and
- 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.
- Those costs that are basis adjustments can be part of your yearly depreciation deduction for the rental property.
References:
- Publication 527, Residential Rental Property
- Publication 17, Your Individual Income Tax Guide
- Publication 535, Business Expenses
Can you deduct Private Mortgage Insurance (PMI) premiums on rental
property? If so, which line item on Schedule E?
Yes. You can deduct Private Mortgage Insurance premium on line 9 of Form 1040, Schedule E (PDF), Supplemental Income and Loss. Write "PMI" on the dotted line.
References:
- Publication 527, Residential Rental Property
- Form 1040, Schedule E (PDF), Supplemental Income and Loss
- Form 1040, Schedule E Instructions, Supplemental Income and Loss