- Escrow fees in a transaction can be found in the final settlement statement. The settlement statement shows all income and disbursements in a transaction, included the charges for escrow. Sometimes escrows will have more than one stated fee. For example, in real estate, the seller might have an escrow fee of $800 and additional charges for preparing a payoff statement or homeowners association transfer document. Ask your escrow officer for a complete breakdown of the escrow charges.
- Escrow fees are not specifically deductible as a line item, however they can help you reduce taxes in the future by adding to the basis of the asset you purchased. The basis is deducted from the future sale price to determine your capital gain. For example, if you bought a property for $100,000 and you had an escrow fee of $1,000, your adjusted basis for capital gains is $101,000.
- Sellers can use escrow fees to reduce the net amount realized from the sale of their property by reducing the gross sale price by the amount of the escrow fee. This is called the net sale price. For example, if you sell a house for $200,000 and you have a $1,000 escrow fee, the net sale price is $199,000. You can deduct your adjusted basis in the property to determine your net capital gain.
- Always keep your final, certified copy of the closing statement on all escrow transactions. This is the document the Internal Revenue Service will ask for to support the deduction. You will take the numbers off this form when either adjusting your cost basis as a buyer or reducing your gross sale price as a seller. Contact your tax professional to determine which fees to use off the closing statement.
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