Taxes and Your Home Inspection

Keep your home inspection invoice with your purchase records. Its tax treatment depends on the purpose of the expense and how the property is used; an inspection receipt is not, by itself, proof of a deduction.

Buying a home for personal use

A home inspection fee is generally not an immediately deductible personal expense. IRS Publication 530 distinguishes deductible closing items from costs that may be included in the home’s basis. Mortgage interest and certain real estate taxes have their own eligibility rules and limits, including itemization requirements. Do not assume every amount on a closing statement is deductible.

A deduction and tax basis are different

A deduction may reduce taxable income for the relevant year. Basis is used in calculating gain or loss and, where applicable, depreciation. Certain acquisition costs can be added to basis, while some financing costs and other expenses receive different treatment. An expense does not automatically qualify for basis simply because it cannot be deducted.

Give your preparer the itemized invoice and closing statement so they can classify the inspection and other costs for your transaction. Avoid combining all nondeductible fees into a single basis adjustment without checking them.

Rental and mixed-use property

Buying a rental does not automatically make all purchase-related expenses immediately deductible. IRS rental guidance distinguishes current rental expenses from acquisition costs that become part of basis. When you live in part of a property and rent another part, allocation and personal-use rules can also apply. Buying a duplex alone does not establish that the entire inspection fee is deductible.

Records to keep and questions to ask

• Keep the inspection invoice, proof of payment and closing statement.
• Explain whether the inspection related to a purchase, an existing rental or a property used partly as your home.
• Ask whether the cost is deductible, included in basis, allocated between uses or treated another way.
• Confirm the rules for the tax year involved and any separate state-tax treatment.

Realm provides inspection services, not individual tax advice. A CPA, enrolled agent or tax attorney can evaluate your facts before you claim an expense.

IRS resources: Publication 530: Tax Information for Homeowners; Publication 527: Residential Rental Property; Publication 551: Basis of Assets.