Are Inspection and Appraisal Cost Deductible?

[Ivy A.]

I paid for an inspection and an appraisal for the deal that eventually failed through. Are those expenses tax deductible at the end of the year since I didn't end up buying the property? 

[Robert Feldman]

Those costs are deductible in the current year. Your tax preparer should be able to get those in the right place.

[Ivy A.]

Thank you Robert.

[Rob Horon]

My CPA says the inspection fee is not deductible if I didn't follow through with the purchase.  Is my CPA mistaken?  How can I convince them that it should be deductible?

[Nicholas Aiola]

@Ivy A. @Robert Feldman @Rob Horon

If you are not currently in business, the inspection and appraisal cost of a failed deal would sit on your books until you begin business (acquire and place a rental in service), at which point it will be added to the property's basis.

If you are currently in business, you will get differences of opinions from different tax professionals on how to handle these costs. I would recommend speaking with your CPA for specific advice.

[Rob Horon]

Thank you, Nicholas.  I am currently "in business", as I have a few other rentals in service, even in the same city as said failed deal.  

Is there a specific section in the IRS code that addresses this topic?

[Rob Horon]

It is frustrating that the deductibility of the failed inspection cost should depend on which CPA is handling my taxes.

[Basit Siddiqi]

@rob horon

The Internal revenue code is large and some CPA"s interpret the law one way while other CPA's interpret the code another way.

That is why you will have differing in opinions.

Some CPA's do not look at court cases which I think is scary. reading on court cases are great because it tells you what other taxpayers tried to get away with and what the IRS deemed to be correct/incorrect and why.