Are Closing Costs Tax-Deductible?

Buying a home is an exciting milestone, but it often comes with a long list of unexpected fees. One of the most common questions from new homeowners is: Are closing costs tax-deductible?

The short answer: Some are, but not all. While many closing costs aren’t eligible, certain expenses like prepaid mortgage interest, property taxes and discount points may qualify for a tax deduction.

Here’s a clear breakdown of which closing costs are deductible — which aren’t — and how to claim them correctly when you file your taxes.

What Are Closing Costs?

Closing costs are fees and expenses you pay when finalizing your home purchase. They typically range from 2% to 5% of your total loan amount.

These costs may include:

• Lender and application fees
• Legal services
• Appraisals
• Title searches and insurance
• Home inspections
• Prepaid taxes or insurance premiums

Some lenders let you roll these costs into your mortgage, but that increases the amount of interest you’ll pay over time.

Common Examples of Closing Costs

While fees can vary based on lender, location and loan type, here are some typical closing costs:

• Application fee
• Origination fee
• Appraisal fee
• Title search and title insurance
• Home inspection fee
• Recording fees
• Discount points
• Prepaid property taxes or homeowners’ insurance

Which Closing Costs Are Tax-Deductible?

Not all closing costs qualify, but the following may be deductible in the year you purchase your home.

1. Mortgage Interest

If you paid prepaid interest at closing, that amount may be tax-deductible. You may also deduct any interest that accrues between your closing date and your first monthly mortgage payment.

To Qualify:

• The loan must be secured by your home
• Funds must be used to buy, build, or improve your primary or secondary residence
• You can only deduct interest on the first $750,000 of mortgage debt — $375,000 if married filing separately
• You must itemize your deductions on Schedule A (Form 1040)

2. Property Taxes

If you prepaid property taxes at closing, you might be able to deduct them — within certain limits.

The IRS allows deductions for taxes that:

• Are state or local property taxes based on your home’s assessed value
• Are paid by the homeowner during the tax year
• Are used for public services like schools, roads

Limit: Your total deduction for state and local taxes (SALT), including property taxes, is capped at $10,000 — $5,000 if married filing separately.

3. Mortgage Points

Mortgage points, or discount points, are fees you may pay at closing to secure a lower interest rate. Since this is considered prepaid interest, it may be deductible.

You may be able to deduct points in full for the year paid if:

• You itemize deductions
• You use the cash method of accounting — most taxpayers do
• The points were paid for a primary residence

If you don’t meet these criteria, you’ll need to deduct points gradually over the life of the loan.

Which Closing Costs Are Not Deductible?

Many closing fees are not tax-deductible, and you can’t add them to your home’s cost basis for future capital gains purposes either.

Here are common non-deductible expenses:

• Application fees
• Loan origination fees
• Appraisals
• Home inspections
• Title insurance
• Real estate commissions
• Attorney fees
• Transfer taxes
• Homeowners insurance premiums
• Recording and notary fees
• Moving costs

How To Claim Your Deductible Closing Costs

There are several steps you’ll need to take to deduct your closing costs. Here’s a breakdown:

Itemizing Deductions

To claim deductions for eligible closing costs, you must itemize using Schedule A with Form 1040 or Form 1040-SR.

Before filing, compare your total itemized deductions to the standard deduction to see which option gives you a greater tax break.

Required Documentation

Keep all documentation that supports your deductions, including:

• Closing disclosures and settlement statements
• Mortgage interest statements (Form 1098)
• Property tax receipts
• Proof of mortgage point payments
• Receipts for qualifying home improvements

Tip: The IRS recommends saving these documents for at least three years in case of an audit.

Special Scenarios To Know

There are some important factors to know and consider if you’re looking to write off your closing costs come tax time. Here’s a breakdown:

Refinancing Your Mortgage

Wondering if you can deduct closing costs when you refinance?

With a refinance, you can’t deduct mortgage points in full the year you pay them. Instead, they must be deducted gradually over the life of the loan.

Exceptions:

• If the refinance funds home improvements, you may deduct that portion of the points in the year paid
• If you refinance again or pay off the loan early, you may be able to deduct the remaining points in full

Rental Properties

If you purchase a rental property, some closing costs are deductible as business expenses.

You can usually deduct:

• Mortgage interest
• Property taxes
• Mortgage points

Other fees — like legal, title or survey costs — must be capitalized and depreciated over time. Residential rental properties depreciate over 27.5 years.

Tips for Homebuyers

If you’re looking to close out and buy your house sometime soon, here are some tips for ensuring it goes smoothly:

Work With a Tax Professional

Tax rules can be tricky, especially when buying a home. A professional can help you:

• Claim every eligible deduction
• Stay compliant with IRS guidelines
• Take advantage of state-specific homeowner tax breaks

Keep Accurate Records

Hold onto the following documents after closing:

• Closing disclosure and Form 1098
• Mortgage point documentation
• Property tax bills
• Receipts for improvements

Good recordkeeping makes filing easier — and protects you if you’re ever audited.

Final Take to GO: Are Closing Costs Tax-Deductible?

Some are, some aren’t. The most common tax-deductible closing costs include:

• Prepaid mortgage interest
• Prepaid property taxes
• Mortgage discount points

To deduct them, you must itemize your deductions and include Schedule A with your tax return. Before filing, compare it to the standard deduction to see which method gives you a better return.

For the best results — and the biggest tax break — consider speaking with a tax pro.

Data is accurate as of July 30, 2025, and is subject to change.