Legal fees and taxes paid as part of a real estate purchase or sale are not taxable. In some cases, the fees may be added to the basis or cost of the home, or they are subtracted from the selling price of the home. In the case of rental or business-use property, closing costs are depreciated as part of the purchase price. Therefore, conveyance and other title fees are not allowed as a separate deduction in the they are year paid. You may be charged a separate fee for state and municipality conveyance fees. Both are excluded when figuring the gain or loss on the sale of the property.
The legal definition of “conveyance” is the transfer of property. When you are required to pay a fee for the transfer of title or a filing fee to record the transfer with a county official, the conveyance fee can be excluded from gain when the property is sold. This is true for a residence, rental property or business-use property. If the conveyance fees are simply an additional service charge levied by the broker, they are still considered closing costs and can be added to the basis of the property. Conveyance fees are charged per $1,000 of the purchase price of the property.
Selling a Property
Conveyance fees are considered the seller’s responsibility. You can choose to add closing costs when calculating the adjusted basis, or you can subtract them from the selling price as settlement fees. There is no separate or itemized deduction for conveyance fees or any other closing costs before the property is sold. If you add the fee to the adjusted basis, you cannot also subtract the same fee as a settlement charge.
Buying a Property
When purchasing property, include closing costs in the adjusted basis calculation. This reduces your capital gain when you later sell the property. You may not deduct the fees as expenses against rental income from the property, nor can you take an itemized deduction for such fees during the time you own the property. Conveyance fees are usually charged to the seller, who is responsible for filing the change in ownership documents, via the real estate broker. If you are charged a conveyance fee, consult your broker regarding the true nature of the expense.
If the conveyance requires the document be notarized, you can include the notary cost with other legal fees and closing costs. Title-related charges may also be called abstract fees, recording fees, transfer or stamp taxes. All of these are included in adjusted basis or in the settlement costs and are excluded when calculating a capital gain or loss on the property.
- West's Encyclopedia of American Law, Edition 2.
- Internal Revenue Service Publication 523: Selling Your Home
- Internal Revenue Service Publication 527: Residential Rental Property
Naomi Smith has been writing full-time since 2009, following a career in finance. Her fiction has been published by Loose Id and Dreamspinner Press, among others. She holds a Master of Science in financial economics from the London School of Economics and a Bachelor of Arts in political economy from the University of California, Berkeley.