Understanding the categories, closing costs, loan costs

I came across the master list of categories posted here, but I’m still curious as to what the individual items mean, and when it is appropriate to use them.

For example, when on-boarding a new property, I have a settlement statement that includes many items:

  • Purchase Price (which I believe should be the Acquisition Price in Stessa)
  • Earnest money
  • Prorated taxes
  • Prorated rents (easy enough, that’s Income>Rent)
  • Various title fees (Are these CapEx>Closing Costs?)
  • Various government/recording fees (Also CapEx>Closing Costs?)
  • Commissions to agents/brokers (Also CapEx>Closing Costs?)
  • Loan fees (origination fees, points, doc fees, prepaid interest, possibly even prepaid insurance–do these all go to CapEx>Loan Costs? Or do they need to be broken down?)
  • Due from borrower (Is this number even relevant? I have an entry for the wire of closing funds imported to Stessa, but how does that get categorized? Or does it matter, since it’s a composite number that should be broken down separately?)

I wonder if a quick tutorial on how some of these common expenses should be categorized (which can vary based on advice of CPA, maybe, sure) would be useful. Or maybe it’s already out there, I just haven’t found it yet…

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@pete Yes, these are great questions for a CPA.

Basically, some closing costs can be expensed in the year incurred while others are capitalized and become part of your cost basis. The “Capital Expenses > Closing Costs” category is for the latter. If, on the other hand, you pay a year’s worth of insurance costs through the closing (not to be confused with funding an impound account), that’s an example of the former and is treated as a regular “Insurance” expense.

Finally, there is a separate category for “Capital Expenses > Loan Costs” so that you can track up front costs associated with the loan (points, etc.) in a separate bucket. You’ll want to do this because they are typically amortized over the life of the loan, not depreciated as part of your basis in the property.

As always, the discussions on the forum are for informational purposes only. We do not offer tax or accounting advice. We strongly recommend consulting with a qualified CPA before moving forward with meaningful decisions.