Option Fee - Tax Accounting (Expense or Depreciate)

[Paul Haviland]

Hi Everyone - 

My question is in regards to tax returns.  I'm interested to better understand if an option fee, for a property you successfully close on, is an expense, or somehow added to your basis and depreciated.  If it is depreciated, what is the schedule?

Is there a limit to your ability to shift more money towards an option fee to reduce the price beyond what is reasonable in a given market?  For example, the property is worth $200,000 could I have an option fee of $100,000 and a purchase price of a $100,000?  If so, what would the implications be?

Thanks in advance for all the help.  At this point, the question is theoretical.  If it is something that I do, I'll of course consult my CPA for confirmation of any information provided.

Thanks,

Paul