IRS Publication 551 — Basis of Assets

5. Fees for refinancing a mortgage.

If these costs relate to business property, items (1) through (3) are deductible as business expenses. Items (4) and (5) must be capitalized as costs of getting a loan and can be deducted over the period of the loan. Points. If you pay points to obtain a loan (including a mortgage, second mortgage, line of credit, or a home equity loan), don't add the points to the basis of the related property. Generally, you deduct the points over the term of the loan.

Points on home mortgage. Special rules may apply to points you and the seller pay when you obtain a mortgage to purchase your main home. If certain requirements are met, you can deduct the points in full for the year in which they're paid. Reduce the basis of your home by any seller-paid points. For more information, see Points in Pub. 936, Home Mortgage Interest Deduction.

Assumption of mortgage. If you buy property and assume (or buy subject to) an existing mortgage on the property, your basis includes the amount you pay for the property plus the amount to be paid on the mortgage. Example. If you buy a building for $20,000 cash and assume a mortgage of $80,000 on it, your basis is $100,000.

Constructing assets. If you build property or have assets built for you, your expenses for this construction are part of your basis. Some of these expenses include the following costs.

• Land.

• Labor and materials.

• Architect's fees.

• Building permit charges.

• Payments to contractors.

• Payments for rental equipment.

• Inspection fees.

In addition, if you own a business and use your employees, material, and equipment to build an asset, don't deduct the following expenses. You must include them in the asset's basis.

• Employee wages paid for the construction work, reduced by any employment credits allowed.

• Depreciation on equipment you own while it's used in the construction.

• Operating and maintenance costs for equipment used in the construction.

• The cost of business supplies and materials used in the construction.

Caution: Don't include the value of your own labor, or any other labor you didn't pay for, in the basis of any property you construct. Business Assets Terms you may need to know (see Glossary): Amortization Capitalization Depletion Depreciation Fair market value (FMV) Going concern value Goodwill Intangible property Modified Accelerated Cost Recovery System (MACRS) property Personal property Recapture Section 179 deduction Section 197 intangibles Tangible property

If you purchase property to use in your business, your basis is usually its actual cost to you. If you construct, create, or otherwise produce property, you must capitalize the costs as your basis. In certain circumstances, you may be subject to the uniform capitalization rules (discussed next).

Uniform Capitalization Rules The uniform capitalization rules specify the costs you add to basis in certain circumstances.

Activities subject to the rules. You must use the uniform capitalization rules if you do any of the following in your trade or business or activity carried on for profit. However, see Exceptions below.

• Produce real or tangible personal property for use in the business or activity.

• Produce real or tangible personal property for sale to customers.

• Acquire property for resale.

You produce property if you construct, build, install, manufacture, develop, improve, create, raise, or grow the property. Treat property produced for you under a contract as produced by you up to the amount you pay or costs you otherwise incur for the property. Tangible personal property includes films, sound recordings, video tapes, books, or similar property.

Under the uniform capitalization rules, you must capitalize all direct costs and an allocable part of most indirect costs you incur due to your production or resale activities. 4 Publication 551 (12-2025)