The closing statement to a real estate purchase contains many potential tax deductions. Treatment of closing statement line items differ depending on whether the property is business (rental) property or used for a personal residence.
Below is a summary of a typical tax treatment of major line items of the often used 2 page HUD-1 closing statement. However, there may also be certain items that are treated differently depending on your particular situation.
A notation of ‘Basis’ refers to costs that become part of the total capitalized cost of the property and not currently deductible, however, these costs can be deducted at the time of sale, or earlier via depreciation if they relate to rental property.
Deductible items are in bold. Nondeductible items are in red. If the item is not coded, in most cases, it it just added to the Basis of your home.
NOTE: How you treat each item also depends on whether the home is your Personal Residence (left column) or if it is a Rental Property (right column).
| HUD-1 Line # | Closing Statement Description | Tax Treatment – Personal Residence | Tax Treatment – Rental Property |
| 101 | Contract Sales Price | Basis – is relevant if property is later sold or rented |
Basis – building portion eligible for depreciation |
| 102 | Personal Property | Basis – is relevant if property is later sold or rented |
Basis – eligible for accelerated depreciation |
| 103 | Settlement Charges | See lines 700-1305 below | See lines 700-1305 below |
| 104-105 | Miscellaneous | Varies | Varies |
| 106 | City/town taxes (See line 210 below) |
Deductible as itemized deduction on Form 1040 schedule A |
Deductible as rental expense |
| 107 | County taxes (See line 211 below) |
Deductible as itemized deduction on Form 1040 schedule A |
Deductible as rental expense |
| 108 | Assessments (See line 212 below) |
LID assessments are part of Basis, other assessments are typically non-deductible. | LID assessments are part of Basis, other assessments are typically deductible. |
| 109-112 | Miscellaneous | Varies | Varies |
| 210 | City/town taxes (See line 106 above) |
This credit reduces deductible taxes on line 106 above |
This credit reduces deductible taxes on line 106 above |
| 211 | County taxes (See line 107 above) |
This credit reduces deductible taxes on line 107 above |
This credit reduces deductible taxes on line 107 above |
| 212 | Assessments (See line 108 above) |
This credit reduces assessments on line 108 above |
This credit reduces assessments on line 108 above |
| 213-216 | Miscellaneous | Varies | Varies |
| 700-703 | Sales & Realtors Commissions | Basis | Basis |
| 801 | Loan Origination Fee | Deductible as itemized deduction (‘points’) on Form 1040 schedule A | Amortized over term of mortgage |
| 802 | Loan Discount | Deductible as itemized deduction (‘points’) on Form 1040 schedule A | Amortized over term of mortgage |
| 803 | Appraisal Fee | Basis | Basis |
| 804 | Credit Report | Non-deductible | Basis |
| 805 | Inspection Fee | Basis | Basis |
| 806 | Mortgage Insurance Fee | Non-deductible | Amortized over term of mortgage |
| 807 | Assumption Fee | Non-deductible | Amortized over term of mortgage |
| 808-811 | Miscellaneous | Varies | Varies |
| 901 | Prorated Interest | Deductible as itemized deduction – this interest typically included in year end interest statement (Form 1098) | Deductible as rental expense – this interest typically included in year end interest statement (Form 1098) |
| 902 | Mortgage Insurance | Non-deductible | Amortized over term of mortgage |
| 903 | Hazard Insurance | Non-deductible | Deductible as rental expense |
| 904-905 | Miscellaneous | Varies | Varies |
| 1001 | Hazard Insurance | Non-deductible | Reserves – deductible when paid from escrow |
| 1002 | Mortgage Insurance | Non-deductible | Reserves – amortizable when paid from escrow |
| 1003 | City property taxes | Reserves – deductible as itemized deduction when paid from escrow | Reserves – deductible when paid from escrow |
| 1004 | County property taxes | Reserves – deductible as itemized deduction when paid from escrow | Reserves – deductible when paid from escrow |
| 1005 | Assessments | Varies | Varies |
| 1006-8 | Miscellaneous | Varies | Varies |
| 1101 | Settlement Fees | Basis | Basis |
| 1102 | Abstract or title search | Basis | Basis |
| 1103 | Title Examination | Basis | Basis |
| 1104 | Title Insurance binder | Basis | Basis |
| 1105 | Document Preparation | Basis | Basis |
| 1106 | Notary Fees | Basis | Basis |
| 1107 | Attorneys Fees | Basis | Typically part of Basis, if tenant related may be amortized over term of lease(s) |
| 1108-1110 | Title Insurance | Basis | Basis |
| 1111-1113 | Miscellaneous | Varies | Varies |
| 1201 | Recording Fees | Basis | Basis |
| 1202 | City/County tax stamps | Basis | Basis |
| 1203 | State tax/stamps | Basis | Basis |
| 1204-05 | Miscellaneous | Varies | Varies |
| 1301 | Survey | Basis | Basis |
| 1302 | Pest Inspection | Basis | Basis |
| 1303-1305 | Miscellaneous | Varies | Varies |
| The above table summarizes tax treatment to buyers of properties – for sellers, these costs (including remaining Basis) are deducted at the time of sale, with the exception of costs that are specifically noted as non-deductible. Of course, capital gains may not be recognized if the property is a personal residence qualifying for the $ 250,000/$ 500,000 capital gain exclusion, or a rental property disposed of via a tax free exchange. | |||