Summary of Tax Treatment for Real Estate Closing Statement Items

	Summary of Tax Treatment for Real Estate Closing Statement Items
Seller:
Expense Item	Personal Residence or Second Home	Business or Rental
Mortgage or Land Contract Payoff	non-deductible	non-deductible
Mortgage/Land Contract Interest	itemized deduction	deduct - business exp.
Abstracting/Title Insurance/Tax History	expense of sale ‡	expense of sale
Real Estate Taxes Paid at closing	itemized deduction	deduct - business exp.
Real Estate Taxes Credited from Purchaser	reduce deduction or increase income *	reduce deduction or increase income *
Special Assessments [payoff]	full assessment (not balance) increases basis	full assessment (not payoff) increases basis
Water/Sewer costs	non-deductible	deduct - business exp.
Water/Sewer escrow	non-deductible	non-deductible (deduct final bill amount)
Title Insurance	expense of sale ‡	expense of sale
Revenue Stamps	expense of sale ‡	expense of sale
Recording Fees	expense of sale ‡	expense of sale
Commission	expense of sale ‡	expense of sale
Rent	non-deductible	N/A
Purchaser Closing Costs	expense of sale	expense of sale

Purchaser:

Expense Item	Personal Residence or Second Home	Business or Rental
Sale Price	Basis	Basis
Casualty Insurance Premium	non-deductible	deduct - business exp.
Atty. Opinion/Title Insurance - mortgage policy	non-deductible ‡	deduct - business exp.
Atty. Opinion/Title Insurance - owner policy	Basis	Basis
Recording Fees - deed	Basis ‡	Basis
Escrow (Prepaid items)	non-deductible	non-deductible
Appraisal Fee - mortgage	non-deductible ‡	amortize over mtg life †
Document Preparation	non-deductible ‡	amortize over mtg life †
Commitment Fee	itemized deduction IF amount represents pre-paid interest. non-deductible otherwise ‡	amortize over mtg life †
Interest Adjustment	itemized deduction (however this is generally included in the 1098 received year end)	deduct - business exp.
Pro-Rata Taxes	itemized deduction	deduct - business exp.
RE Transfer Tax (new builds)	Basis	deduct - business exp.
Mortgage Survey	non-deductible ‡	amortize over mtg life †
Closing fees	non-deductible ‡	amortize over mtg life †
Loan Discount Points	itemized deduction - if re-finance or second home, must amortize	amortize over mtg life †
† costs that represent acquisition of the mortgage must be amortized over the life of the mortgage ‡ some expenses not otherwise deductible may become deductible if the sale/purchase is part of a move that is deductible. Note: the 1993 tax law changes end this exception after 12/31/93. * refunds of amounts deducted in a prior year must be included in income in the year the refund is received, subject to "tax benefit rule" limitations Important - see definitions and disclaimers below! Definitions "Itemized Deduction" means that the amount may be deducted on Schedule A of Form 1040 as an itemized deduction if the taxpayer otherwise qualifies to itemize deductions. "Deduct - Business Exp." means that the amount will generally be considered an ordinary and necessary business expense if the real estate was used in a business or rental activity. If the real estate is held for investment only, this does not apply "Basis" means that the amount is part of or added to basis and used to reduce gain or increase loss upon sale. "Expense of sale" means that the amount is part of expenses of sale and serves to reduce the gain or increase the loss upon sale. "Amortize over mtg life" means that a ratable portion of the amount is deducted each year over the life of the mortgage. Any remaining amounts are deducted in full when the mortgage is fully paid. "non-deductible" means that this item does not affect taxes at all. Special rule for your personal residence For sales before May 7, 1997, the sale of a principal residence with replacement within 24 months either side of the sale date results in the potential for non-recognition of gain and carryover of basis into the new residence. Sale of a principal residence and certain former residences by taxpayers over age 55 (on the date of sale) may provide for the exclusion of up to $125,000 of gain, in addition to the non-recognition provisions above. A loss on the sale of your personal residence is not deductible. Both of the above are repealed for sales on and after that date, and up to $250,000 of gain is excluded from income (up to $500,000 on a joint return) for the sale of a principal residence. This new exclusion is available regardless of age and may generally be claimed once every two years. The home must have been used as your principal residence for an aggregate of two years during the previous five year period. We recommend that documents which reflect cost basis, additions to basis (items on the reverse plus property improvements) as well as documents relating to the selling price and selling costs of property be kept forever, but in no case less than six years following the final sale and disposition of the property to which they relate. For an in-depth individual consultation contact: Young, Heck & Zimbler, LLC G-3339 Van Slyke Road PO Box 7909 Flint, MI 48507-0909 810-767-7000 Disclaimer: The above chart and discussion are summaries of complex aspects of tax law. Tax laws change. Your individual circumstances may result in a tax treatment which differs from the above summary. Contact your tax advisor before entering into a property transaction to ensure that the structure of the transaction provides the expected tax benefits. These summaries do not consider any individual or special circumstances. While the information is believed to be accurate at the time of publication, Young, Heck & Zimbler, LLC, its officers or employees make no guarantee or warranty, express or implied as to the accuracy of the information presented and accept no responsibility for errors or omissions in the above nor for any damages, direct or consequential arising from reliance on the information contained herein.

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