Question

Do annual real estate taxes and mortgage interest count towards adjusted cost basis on a second home?

Forum|Forum|2 years ago
March 30, 2024
1 reply
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Hello TurboTax community

For a second property sold (non-rental), does the mortgage interest paid on it along with the yearly real estate taxes paid on it count towards the adjusted cost basis for it?

I've accounted for the initial purchase, settlement costs, permanent repair costs and initial sales transfer tax at time of settlement - but am I able to include the mortgage interest and the annual real estate taxes into that adjusted cost basis?

If yes, please include IRS.gov reference too if you could.

Thanks in advance

M

Mike9241

NO!!! on a second home, those expenses are Schedule A deductions subject to the limitations for taxes and mortgage interest.

TerboTacksAuthor

Thanks for the response! With that said, where do we enter a Schedule A into TurboTax? The "investment" section didn't prompt me for anything to add real estate taxes for second home in particular.

PatriciaV

Thanks @DawnC I went to that section and it indicates only for those real estate taxes for 2023 and not previous years.

My question is more specific to an investment property and seeing if the previous annual real estate taxes over the years can count toward the sale of the second property?

ie: the secondary property sold for $50,000 but over the several years(say 5) we had paid $1,000 a year in property taxes, so $50,000 - ($1000x 5 years) = $45,000 adjusted cost basis for the property (not including any realtor fees or settlement costs)

Is this feasible?

Thanks again

There are some options to capitalize carrying costs for an investment property under Section 266, See this article from The Tax Adviser for more information: Elective capitalization as a TCJA planning tool.

You may wish to contact a local tax professional for guidance in applying these rules to your property.

@TerboTacks

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