Are loan origination points deductible on a rental?

On a rental property, points are amortized over the life of the loan rather than deducted immediately. That differs from a primary residence purchase, where points paid to obtain the mortgage can often be deducted in full in the year paid. Refinancing a rental also produces amortizable points.

Do title fees add to basis or get deducted?

Title insurance, title search, recording fees, transfer taxes, survey costs, legal fees, and appraisal fees related to acquiring the property are all added to basis. They are recovered through depreciation on the building portion over the applicable recovery period, not deducted at closing.

What happens to closing costs when I sell a rental?

Selling costs such as agent commissions, transfer taxes, and title charges reduce the amount realized on the sale, which reduces your gain. They are not deducted against rental income. Unamortized loan costs from a loan being paid off can generally be written off in the year of the payoff.

Can I deduct the down payment on a rental property?

No. A down payment is part of your investment in the property, not an expense. It becomes part of your basis and is recovered through depreciation on the building over time, and through reduced gain when you eventually sell.

How do I allocate basis between land and building?

Only the building is depreciable, so the purchase price plus capitalized closing costs must be split. A common approach uses the assessed value ratio from the property tax bill, though an appraisal that separately values land and improvements is stronger support and often produces a more favorable allocation.

Tax Answer

Rental Closing Costs

Three buckets, and only one of them is deductible this year. Getting the split right at purchase sets up every depreciation deduction that follows.

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A guide by Taxstra Tax & Accounting · CPA-led tax strategy for business owners

Your Guide

01The Three Buckets 02Line by Line Through a Closing Statement 03The Land Allocation That Follows 04Refinancing and Selling 05Frequently Asked Questions

Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last updated August 15, 2026.

Quick answer

Most rental closing costs are not immediately deductible. Prepaid property tax, prepaid mortgage interest, and prepaid insurance are deductible in the year of purchase. Title, legal, recording, survey, and appraisal fees are added to basis and depreciated. Loan costs and points are amortized over the loan term.

A closing statement on a rental purchase can list thirty or more line items, and the instinct is to treat the total as a deductible cost of acquiring the property. Almost none of it works that way.

Each line falls into one of three buckets, and the bucket determines whether you benefit this year, over the life of the loan, or over decades of depreciation. Sorting them correctly at purchase is far easier than reconstructing it later.

The Three Buckets

Every line on the statement goes into one of them.

Bucket 1: Deduct now

Prepaid property tax, prepaid mortgage interest, and prepaid insurance covering the period after closing. A small share of a typical statement.

Bucket 2: Add to basis, depreciate

Title insurance, title search, recording fees, transfer taxes, survey, appraisal, and legal fees tied to acquiring the property. Recovered over the depreciation period on the building portion only.

Bucket 3: Amortize over the loan

Points, loan origination fees, lender appraisal and underwriting charges, and mortgage recording costs. Spread across the loan term rather than the property life.

Why bucket 3 is separate from bucket 2

Loan costs relate to the financing, not the property. If you refinance or sell and pay the loan off early, the remaining unamortized balance generally becomes deductible at that point. Costs sitting in basis do not accelerate that way, which is why keeping the two apart on your schedule matters years later.

Line by Line Through a Closing Statement

The items that appear on nearly every purchase.

Closing item	Treatment
Purchase price	Basis, split between land and building
Prepaid property tax	Deduct now on Schedule E
Prepaid mortgage interest	Deduct now on Schedule E
Prepaid hazard insurance	Deduct over the period covered
Loan origination points	Amortize over the loan term
Lender appraisal and underwriting	Amortize over the loan term
Title insurance and title search	Add to basis
Recording and transfer taxes	Add to basis
Survey and inspection	Add to basis
Attorney fees for the purchase	Add to basis
Escrow deposits for future taxes	Neither. Deduct when the servicer actually pays the tax.
Seller credits for repairs	Generally reduce basis rather than create income

Watch Out

Points on a rental are not points on a home

Points paid to obtain a mortgage on a primary residence can often be deducted in full in the year paid. On a rental they must be amortized over the loan term. This is one of the most common errors when an investor buys their first rental after only ever buying homes.

The Land Allocation That Follows

Only the building depreciates, so the split is worth real money.

Once you have total basis, it has to be divided between land, which never depreciates, and improvements, which do. A higher building allocation produces a larger annual depreciation deduction for the entire holding period.

Worked example

A $500,000 purchase with $12,000 of capitalized closing costs, compared under two allocation methods.

Allocation A: 30 percent to land

Depreciable building basis$358,400

Allocation B: 20 percent to land

Depreciable building basis$409,600

Additional depreciable basis$51,200

Illustrative arithmetic only. The allocation must reflect actual relative values and be supportable; it is not a free choice.

Taxstra CPA Tip

Taxstra Tip

The assessed value ratio from the property tax bill is the common shortcut, but assessors are not valuing for this purpose and their land ratios are often high. An appraisal that separately values land and improvements is stronger documentation and frequently supports a more favorable split. Order it near the purchase, not years later.

Once basis is established, the next question is whether to accelerate it. A cost segregation study reclassifies components into shorter recovery periods, and the mechanics are in the cost segregation guide, with the baseline schedule in the rental depreciation guide.

Refinancing and Selling

Two events that release costs sitting on your schedule.

Refinancing generates new amortizable costs

Points and loan costs on the new loan start their own amortization schedule over the new term.

Paying off the old loan releases the remainder

Unamortized costs from a loan being retired can generally be written off in the year of payoff, which is easy to miss during a refinance.

Selling costs reduce the amount realized

Agent commissions, transfer taxes, and closing charges on the sale reduce gain rather than being deducted against rental income.

Depreciation is recaptured on sale

Depreciation claimed, and in most cases depreciation you were allowed to claim but did not, is recaptured at a higher rate than long-term capital gain. Skipping depreciation does not avoid this.

Watch Out

Not claiming depreciation does not help you

Recapture is calculated on depreciation allowed or allowable. An investor who never depreciated the property is generally still treated as having done so when they sell, which produces the recapture without ever having received the deduction. This is the worst outcome available and it is entirely avoidable.

Financing structures beyond the original purchase have their own tracing rules, covered in the HELOC guide, and the operating side of financing costs is in the Schedule E mortgage interest guide. Investors buying to renovate and resell rather than hold should read the fix and flip guide, where inventory treatment replaces depreciation entirely. Setting up records that make all of this tractable is covered in the real estate bookkeeping guide, and property tax treatment is in the property tax guide.

Just Closed on a Rental?

The allocation you make now determines your depreciation for decades and whether a cost segregation study is worth running. Getting it right at year one is far cheaper than fixing it later. The initial consultation is free.

Frequently Asked Questions

Only a few are deductible in the year of purchase: prepaid property tax, prepaid mortgage interest, and prepaid insurance for the period covered. Most other costs are either added to basis and depreciated, or amortized over the life of the loan. Almost nothing is a simple immediate write-off.

Basis Decisions Compound Over the Whole Holding Period

Land allocation, capitalization choices, and cost segregation timing set the depreciation you get for the life of the property. Book a free initial consultation with a Taxstra CPA.

Next Steps

Filing it yourself is fine. Optimizing it is where the money is.

Getting the form right keeps you out of trouble. The strategies below are what actually lower the bill.

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Authoritative Sources

Citations reflect U.S. federal tax law as of the article's last reviewed date.

Related Rental Property Guides

Rental Property Depreciation

The recovery schedule, the land exclusion, and recapture on sale.

Schedule E Mortgage Interest

Reporting financing costs on an operating rental.

HELOC on Investment Property

Tracing rules that determine whether the interest is deductible.

Real Estate Bookkeeping

Setting up the records that make all of this tractable from day one.