A taxpayer may bring you a document known as a closing disclosure or settlement statement (Form HUD-1, ALTA Settlement Statement, or similar), providing information about the property they have purchased and, if applicable, the mortgage loan they took out. They may bring you Form HUD-1a if, for example, they took out a reverse mortgage.
These statements contain several potential tax deductions, but how a particular line item is treated varies depending on whether the property is business (rental) property or used as a personal residence.
Below is a summary of the typical tax treatment of major line items on the HUD-1 closing statement. If the statement you have is not Form HUD-1, the line numbers won't apply and the description may be worded slightly different.
"Basis" refers to an amount that is added to the property's basis rather than being deducted.
Deductible items are in bold. Nondeductible items are in red.
| HUD-1 Line # | Description | T A X T R E A T M E N T | |
| Personal Residence | 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 depending on what it is | Varies depending on what it is |
| 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 depending on what it is | Varies depending on what it is |
| 210 | City/town taxes (see line 106 above) |
This adjustment reduces deductible taxes on line 106 above | This adjustment reduces deductible taxes on line 106 above |
| 211 | County taxes (see line 107 above) |
This adjustment reduces deductible taxes on line 107 above | This adjustment reduces deductible taxes on line 107 above |
| 212 | Assessments (see line 108 above) |
This adjustment reduces assessments on line 108 above | This adjustment reduces assessments on line 108 above |
| 213-219 | Miscellaneous | Varies depending on what it is | Varies depending on what it is |
| 700-703 | Sales & Realtors Commissions | Basis | Basis |
| 801 | Loan Origination Fee | Deductible as itemized deduction ("points") on Form 1040 Schedule A | Amortized over the term of the mortgage |
| 802 | Loan Discount | Deductible as itemized deduction ("points") on Form 1040 Schedule A | Amortized over the term of the mortgage |
| 804 | Appraisal Fee | Basis | Basis |
| 805 | Credit Report | Non-deductible | Basis |
| 806 | Tax Service | Non-deductible | Basis |
| 807 | Flood certification | Basis | Basis |
| 808-811 | Miscellaneous | Varies depending on what it is | Varies depending on what it is |
| 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 | Varies (See Pub 936) | Amortized over term of mortgage |
| 903 | Homeowner's Insurance | Non-deductible | Deductible as rental expense |
| 904 | Miscellaneous | Varies depending on what it is | Varies depending on what it is |
| 1002 | Homeowner's Insurance | Non-deductible | Reserves - deductible when paid from escrow |
| 1003 | Mortgage Insurance | Non-deductible | Reserves - amortizable when paid from escrow |
| 1004-1006 | Property taxes | Reserves - deductible as itemized deduction when paid from escrow | Reserves - deductible when paid from escrow |
| 1007 | Aggregate Adjustment | NA | NA |
| 1101 | Title services and lender's title insurance | Basis | Basis |
| 1102 | Settlement or closing fee | Basis | Basis |
| 1103 | Owner's title insurance | Basis | Basis |
| 1104-1106 | Lender's title insurance | Basis | Basis |
| 1107 | Agent's portion of total title ins premium | Basis | Basis |
| 1108 | Underwriter's portion of total title ins premium | Basis | Basis |
| 1109-1111 | Miscellaneous | Varies depending on what it is | Varies depending on what it is |
| 1201 | Recording Fees | Basis | Basis |
| 1202 | City/County tax stamps | Basis | Basis |
| 1203 | Transfer taxes | Basis | Basis |
| 1204 | City/county tax/stamps | Basis | Basis |
| 1205 | State tax/stamps | Basis | Basis |
| 1206 | Miscellaneous | Varies, most likely basis | Varies, most likely basis |
| 1301-1305 | Additional settlement | Varies depending on what it is | Varies depending on what it is |
| The above table summarizes tax treatment for property buyers. For sellers, these costs (including remaining basis) are deducted at the time of sale, with the exception of costs that are specifically noted as nondeductible. Capital gains may be excluded 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. | |||
