Buying a North Carolina rental: build the acquisition file

Keep the final closing package, not just an estimate

Save the signed purchase agreement and amendments, final settlement statement or closing disclosure, deed, invoices and evidence of payments made before and at closing. Reconcile deposits and seller credits to the final statement so money already included in the closing totals is not counted a second time. Keep the final version clearly distinguished from earlier estimates.

For a Wake County purchase, the Register of Deeds provides an online real-property index; Durham County also provides an official recorded-document search. Those resources can help locate recorded documents. They do not replace the private settlement statement and invoice detail you should request from the closing professional when missing.

Separate buying costs from borrowing costs

IRS Publication 551 explains that certain acquisition costs become part of basis, while costs of obtaining a loan are treated differently. Keep title, recording, legal and survey charges identifiable, and separate loan origination charges, lender-required appraisal fees, prepaid items and escrow deposits for review. A line’s presence on a closing statement does not make every charge part of the building’s cost.

Retain explanations of tax prorations, unpaid seller obligations and credits rather than netting them into a single “closing costs” number. Borrowed funds can be part of the purchase price; the down payment is not the entire basis. Later mortgage principal payments are not a second purchase of the property.

Document what the purchase price bought

Keep support for allocating the acquisition cost among land, building and separately acquired assets. Land is not depreciable. An appraisal, contractual allocation or other valuation evidence may help explain the relative values, but an unsupported percentage copied from another property is not a property-specific record.

Publication 551 describes allocation using relative fair market values and allows assessed values when the land-and-building fair market values are uncertain. Save any county assessment used, including its date and breakdown, for the preparer to evaluate. Do not simply substitute the county’s total assessment for the purchase basis or copy the seller’s depreciation schedule as your own.

Connect acquisition to rental readiness

Keep post-closing work and equipment purchases in separate project records with completion and readiness dates. The closing date and the date the property is ready and available for rent may differ. Save the listing, lease and management records that explain the transition without assuming the first tenant’s payment establishes the depreciation start date.

When the first return is prepared, retain the basis calculation, allocation support and depreciation schedule with this permanent file. Identify any missing document and its source rather than filling the gap with a guess. Later improvements can then be added as distinct entries instead of erasing the original acquisition history.

• For a former personal home, add the conversion values and timeline
• Carry the acquisition records into the annual rental-income file