There are many potential tax deductions available throughout the two-page HUD-1 closing statement. Which expenses are available for you to use depend upon whether the property is for use as your personal residence or as a rental property. Some expenses are deductible; others are added to your cost basis for when you sell the property. Be sure to consult your tax professional for information specific to your purchase.
Establishing Your Cost Basis
Line 101 of the HUD 1 statement is the contract sales price, the initial cost basis of your property. Investment properties, in general, offer more tax breaks, but the cost basis can be adjusted for both rentals and owner-occupied homes so that when you sell the property, you can reduce your net gain.
Specific Items You Can Add to Your Cost Basis for a Rental Property
Starting with your contract sales price on line 101, you can add local investment district (LID) assessments, sales and real estate broker commissions, appraisal fees, credit report fee, home inspection fee, settlement fees, abstract or title search fees, title examination, title insurance binder, document preparation fees, notary fees, attorney fees, title insurance, recording fees, city or county tax stamps, survey and pest inspection fees. Other miscellaneous fees may be added to the cost basis. Check with your tax consultant.
Line Items Deductible the First Year for Rental Property
Line 106: city taxes, line 107: county taxes, line 108: assessments other than local investment district (LID) assessments are deductible. Line 901: prorated interest, line 903: hazard insurance, and line 1001: hazard insurance reserves become deductible when paid from escrow. Line 1003: city taxes when paid from escrow and line 1003: county taxes when paid from escrow, are all deductible as business expenses on rental properties.
Line Items You Can Deduct or Add to Your Cost Basis for a Personal Residence
HUD 1 expenses you can add to the contract sales price for your personal residence include personal property, real estate broker commissions, appraisal fees, home inspection fees, settlement fees, abstract or title search fees, title examination, title insurance binder, documentation preparation, notary, attorney fees, title insurance, recording fees, city-county tax stamps, survey, and pest inspection. Tax deductions include city taxes, county taxes, loan origination fees, loan discount points, and city and county taxes paid from escrow.
- TaxSlayer.com: Can I Deduct the Closing Costs from Purchasing my Home?
- TaxMama; HUD 1; Feb. 1, 2011
- Real Estate Zing: HUD Statement
- Internal Revenue Service: Publication 530 - Main Content
- U.S. Department of Housing and Urban Development: 100 Questions & Answers About Buying a New Home
- Bankrate; First-Time Homebuyer's Guide to Taxes; Kay Bell; January 2008