Tax Deduction for an Interim Occupancy Fee
- Occupancy fees are paid when a future homeowner is allowed by the developer to occupy his property before the final closing date — the point in time when the property’s title transfers to the homeowner. The occupancy fees are “rent” paid to the developer for the property’s use. Occupancy is the time period representing the review that occurs from receipt of the certificate of occupancy by the developer to the registration of the property by the local building authorities, after verifying that the building is in agreement with the original site plan submitted by the developer.
- A variety of settlement costs are incurred when a property is purchased and included as part of the asset’s tax basis. Some of these costs include the owner’s title insurance, fees for installation of utilities and legal fees related to the property’s title search and preparation of the sales contract and property deed. Other settlement costs are not added to or deducted from the property’s basis. Some of these settlement costs are casualty insurance premiums, expenses for utilities and other services related to occupancy of the property before the closing date and the rent, or occupancy fees, paid to reside in the property before the closing date.
- The interest paid on a property’s mortgage is an expense that can be used as a tax deduction for individuals who choose to itemize deductions on their return. The tax deduction usually applies to interest on an individual’s principal and second home. The interest paid must also be on a mortgage considered to be secured debt, or debt that is backed up by collateral, such as the property being purchased.
- Property real estate taxes can also be used as a tax deduction, if you choose to itemize deductions on form 1040. The tax deduction can include taxes paid at time of closing or to a taxing authority during the tax year. The tax must be for the assessed value of the property and charged by the taxing authority at a uniform rate.