Buyer Agent's commission and tax write off

[Saika Maeda]

Hi all, 

I'm about to place an offer on a property with an ADU, which we plan to rent it out.

I understand that if I rent this ADU out, then I can have a tax write off on the mortgage payment and insurance payment for the the ADU's sqft portion. Does that same logic apply to "buyer agent commission"? My question is; is it better to not ask the seller to pay for the buyer agent's commission (not include it in the offer letter) so that I pay it by myself and get a tax write off on this commission expense for the ADU's sqft portion? I have a choice to ask the seller to pay for my buyer agent's commission or not include it in the offer letter (pay by myself), so I wanted to know before I submit the offer.

Thank you! 

[James Mc Ree]

I am doing this now and included Seller's transfer tax. You can deduct it as a business expense, but it is depreciated over 27.5 years.

[Joshua Thompson]

Great question! Based on the purchase price, closing cost, agent fees and certain other items you will calculate (capitalize) a total number. A percentage of this number is then used to determine what portion is related to the ADU vs the portion of the property you're using personally. This will determine the depreciation amount. Typically it's better to have the seller pay the buying agent because that amount if you paid it would still need to be capitalized and won't be expensed entirely in the first year.

[Jason Malabute]

Like what Joshua said, purchase price, closing cost, and agent fees are capitalized. Normally seller pays buyer agent fees

[Rick Albert]

I would talk to a CPA because even if you could write it off, it's not like you are getting 100% back, so make sure it actually makes sense to do so. Personally I would rather finance it and keep the cash in hand to go buy more properties than pay the full amount out of pocket, regardless of the potential tax benefits.

[Jake Baker]

@Saika Maeda

Congrats on pursuing a property with an ADU—it's a great way to generate rental income!

I agree with @Jason Malabute. The buyer’s agent commission is typically not a direct tax-deductible expense, whether you pay it yourself or the seller covers it. Commissions are generally considered part of the acquisition costs, which are added to the property’s basis (the starting point for calculating depreciation and capital gains).

Since you're planning to rent out the ADU, you could depreciate the ADU's share of the property over time, which may indirectly allow you to benefit from the commission expense. It's unlikely to provide the immediate tax write-off you're envisioning.

I’d recommend consulting a CPA to clarify your situation, especially if you’re splitting usage between personal and rental.

[Sean O'Keefe]

Quote from @Saika Maeda:

Hi all, 

I'm about to place an offer on a property with an ADU, which we plan to rent it out.

I understand that if I rent this ADU out, then I can have a tax write off on the mortgage payment and insurance payment for the the ADU's sqft portion. Does that same logic apply to "buyer agent commission"? My question is; is it better to not ask the seller to pay for the buyer agent's commission (not include it in the offer letter) so that I pay it by myself and get a tax write off on this commission expense for the ADU's sqft portion? I have a choice to ask the seller to pay for my buyer agent's commission or not include it in the offer letter (pay by myself), so I wanted to know before I submit the offer.

Thank you! 

You can't deduct the entire "mortgage payment" only the "mortgage interest" portion of payments is a tax deduction and needs to be prorated for ADU vs. Primary 
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*This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

[Ashish Acharya]

@Saika Maeda If you pay the buyer's agent commission directly, it becomes part of your property's basis (purchase price) rather than an immediate tax-deductible expense. For the ADU portion rented out, you can depreciate its share of the property, including the commission. However, this provides tax benefits over time rather than an upfront deduction.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.

[Sean Graham]

Quote from @Saika Maeda:

Hi all, 

I'm about to place an offer on a property with an ADU, which we plan to rent it out.

I understand that if I rent this ADU out, then I can have a tax write off on the mortgage payment and insurance payment for the the ADU's sqft portion. Does that same logic apply to "buyer agent commission"? My question is; is it better to not ask the seller to pay for the buyer agent's commission (not include it in the offer letter) so that I pay it by myself and get a tax write off on this commission expense for the ADU's sqft portion? I have a choice to ask the seller to pay for my buyer agent's commission or not include it in the offer letter (pay by myself), so I wanted to know before I submit the offer.

Thank you! 

I don't think your math makes sense. If the seller pays for it, then it costs you nothing. If you pay for it, then you only get to use a % of it as a tax write-off. I'd rather have someone else pay for it.