basis of new property
I have a like kind exchange property under audit by NYS. The auditor is claiming that the basis of the new property should include the unamortized refinance costs from the original property. I had written those off since the mortgage has been paid off at the first closing. Do you have any experience with this? Any help would be appreciated.
Thanks for your question. We don’t provide specific tax advice in the forum because individual circumstances can vary so widely. That said, we can tell you that if you have costs of financing a property they can usually be included as part of your cost basis in the property. If you’ve traded up in properties using 1031 like-kind exchanges, any additional financing charges or refinancing charges can be added to your total cost basis.
HOWEVER, if you have already declared these expenses as tax deductions, then they can NOT be included as part of your cost basis. Many people prefer to declare as tas-deductible expenses to offset income rather than include them with cost basis to offset capital gains taxes (which are much lower) and it sounds like this is what you’ve done. If that’s the case, then you’ve already gotten your tax benefit from these expenses and can’t use them again as part of your cost basis.
For more information on how 1031 exchanges work and their potential tax implications, you can refer to our Ultimate Guide on Like-Kind Exchanges.
Hope this helps. Best wishes for continued success.