Closing Costs: Miscellaneous Expense or Cost Basis?

[Juan Alcorta]

Hi everyone, 

I recently closed on my first rental property and I'm curious about how to track closing costs correctly. Do they apply as "miscellaneous" expense (which I can deduct when I file the taxes of the current year) or add them to the cost basis (which will reduce your taxable capital gain when you sell the house).

Here is a concrete example with some made up numbers from closing day:

- Purchase Price: $300,000

- County taxes from 11/01/2023 to 01/01/2024: $850

- HOA Prorations: $30

- Appraisal Fee: $400

- Prepaid Interest from 11/03/23 to 12/01/23: $1,100

- 3 months of homeowners insurance (for escrow account): $150

- 4 months of property taxes (for escrow account): $2000

- Underwriting Fee: $600

- Wire Fee: $15

- TITLE & ESCROW CHARGES: ...

- Government Charges: ...

- 1 year of Homeowners insurance:..

- Home warranty: ..

How to track all of these? Except for everything that goes to the escrow account (and will be used later to pay taxes/insurance), does the rest go into cost basis? Or some of these count as expenses for the year 2023?

Thanks in advance!