Are Closing Costs Tax Deductible? (What You Can and Can't Claim)

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Meta Description: Most closing costs are NOT immediately deductible. Mortgage points and property taxes paid at closing may be deductible. Full breakdown by line item.

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H1

Are Closing Costs Tax Deductible?

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ANSWER SECTION

Most closing costs are NOT immediately tax deductible when you buy a home. However, two major exceptions exist: mortgage points (loan origination fees) and property taxes paid at closing may be deductible in the year of purchase. Other closing costs are added to your home's cost basis and reduce your taxable capital gain when you eventually sell the property.

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H2: Closing Costs That ARE Deductible

Mortgage Points (Loan Origination Fees):

• Deductible in the year paid if you meet IRS requirements
• Must be for your primary residence
• Must be a standard practice in your area
• Points must be calculated as percentage of loan amount
• Must be clearly labeled as points on settlement statement

Property Taxes:

• Portion of property taxes paid at closing is deductible
• Subject to the $10,000 SALT cap (combined state and local taxes)
• Prorated based on time of year you purchase

Prepaid Interest:

• Interest paid from closing date to end of month is deductible
• Appears as "prepaid interest" or "per diem interest" on closing documents

Form to Use: Schedule A, Itemized Deductions

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H2: Closing Costs That Are NOT Deductible

These common closing costs are NOT deductible but add to your cost basis:

Closing Cost	Deductible?	Treatment
Appraisal fee	No	Add to basis
Credit report fee	No	Add to basis
Title insurance	No	Add to basis
Recording fees	No	Add to basis
Survey fees	No	Add to basis
Attorney fees	No	Add to basis
Inspection fees	No	Add to basis
Transfer taxes	No	Add to basis
Homeowners insurance	No	Add to basis
HOA fees/points	No	Add to basis

What "Add to Basis" Means: These costs increase your home's "cost basis" — the starting point for calculating capital gains when you sell. Higher basis = lower taxable gain.

Example:

• Purchase price: $400,000
• Non-deductible closing costs: $10,000
• Cost basis: $410,000
• Sell later for $500,000
• Taxable gain: $90,000 (not $100,000)

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H2: Buyer vs. Seller Closing Costs

Buyers Can Deduct:

• Mortgage points (if requirements met)
• Property tax portion
• Prepaid interest

Sellers Can Deduct:

• Property taxes (portion up to sale date)
• Mortgage interest (up to sale date)
• Real estate commissions (reduces sale price/gain)
• Some selling expenses (reduce capital gain)

Sellers Cannot Deduct:

• Most closing costs are not direct deductions
• Instead, they reduce the amount realized from the sale
• This indirectly reduces capital gains tax

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H2: State-Specific Rules

California:

• Follows federal treatment
• California allows itemized deductions only if you itemized federally
• California conforms to SALT cap ($10,000 limit on state and local taxes)
• Transfer taxes in California are not deductible but add to basis

New York:

• Mortgage recording tax may be deductible as mortgage interest in some cases
• Transfer taxes generally not deductible

Texas, Florida:

• No state income tax
• Only federal tax treatment applies

Most states follow federal rules for closing cost deductibility.

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H2: Special Situations

Refinancing:

• Points deducted over the life of the loan (not immediately)
• 30-year loan = deduct 1/30th of points each year
• If you refinance again, remaining points can be deducted in full

Home Improvement Loans:

• Points on loans for substantial home improvements may be fully deductible
• Must meet the same tests as purchase points

Investment Property:

• Closing costs treated differently for rental properties
• Many costs must be capitalized and depreciated
• Some may be deductible as startup expenses

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H2: Related Tax Questions

For a comprehensive guide to all homeowner deductions including mortgage interest and property taxes, see our homeowner tax deductions guide covering every available deduction.

Learn about homeowners insurance specifically in our guide on whether homeowners insurance is tax deductible with rental property exceptions.

Understand mortgage insurance in our guide on whether mortgage insurance is tax deductible with the 2021 expiration status.

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