Are Closing Costs Tax-Deductible?

"The short answer is that most closing costs are not tax-deductible, though certain items, like mortgage interest, discount points, and prepaid property taxes, may be. Other costs, while not immediately deductible, can be added to your home's cost basis, potentially reducing your tax liability when you sell. This real estate article explains which closing costs you can deduct, which you cannot, and how to make the most of your home's cost basis for future tax benefits so you can plan accordingly."

"Closing costs are the fees and expenses you pay to finalize a real estate transaction. They usually range between 2% and 5% of the home's purchase price and may include loan origination fees, title insurance, recording fees, prepaid taxes, and more. While most closing costs are not tax-deductible, mortgage interest, discount points, and property taxes can usually be deducted, but only if you itemize your deductions on your tax return."

Most closing costs paid when buying a home are not tax-deductible. Mortgage interest, discount points, and prepaid property taxes can usually be deducted, but only when the buyer itemizes deductions. Prepaid mortgage interest collected at closing is generally deductible in the year paid and is reported by the lender on Form 1098. Deduction limits typically apply to mortgages up to $750,000 for newer loans and higher limits for older loans. Many other closing fees are nondeductible but can be added to the home's cost basis, which may reduce taxable gain when the home is sold. Choosing the standard deduction generally prevents claiming these itemized deductions.

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