Are Closing Costs Tax Deductible?
In most cases, no. But a few specific expenses like mortgage points, prepaid property taxes, and mortgage interest can help reduce your tax bill. Knowing which costs qualify and how to claim them can save you money, especially if you’re planning to itemize your deductions.
Let’s break it down simply—what’s deductible, what’s not, and how to get the most out of your closing paperwork.
What Are Closing Costs?
Closing costs are all the fees and charges that come due when you finalize a real estate transaction. They cover the behind-the-scenes work that makes your home purchase or sale official and include things like processing your loan, verifying the property’s title, recording the transaction, and more.
These costs typically fall between 2% and 5% of the home’s purchase price, depending on your location, lender, and the type of loan you’re using. While both buyers and sellers have expenses at closing, what you pay and whether any of it is tax deductible, depends on your role in the transaction.
For Buyers, Common Closing Costs May Include:
- Loan origination fees: Charged by your lender for processing the loan application.
- Appraisal and inspection fees: To determine the home’s value and assess its condition.
- Title search and title insurance: To confirm legal ownership and protect against disputes.
- Attorney or escrow fees: For preparing and reviewing legal documents.
- Prepaid property taxes and mortgage interest: Often required upfront at closing.
- Homeowners insurance premiums: Usually paid for the first year in advance.
- Mortgage points: Optional fees you can pay to lower your interest rate.
For Sellers, Common Costs Often Include:
- Real estate agent commissions: Usually the largest single expense at closing.
- Transfer taxes: Fees charged by your state or local government to transfer property.
- Owner’s title insurance: In some states, sellers cover this to protect the buyer.
- Attorney and escrow fees: Depending on local laws and practices.
While there’s no avoiding closing costs entirely, it’s helpful to understand what each charge covers—and which ones could help you at tax time. In general, only some buyer-paid costs qualify for tax deductions.
What Does “Tax Deductible” Actually Mean?
When something is tax deductible, it means you can subtract that amount from your total income before calculating how much you owe the IRS. The less income you have on paper, the lower your tax bill could be.
There are two main ways to claim deductions on your federal tax return:
- Standard Deduction – This is a fixed amount set by the IRS each year. It’s the easier option because you don’t have to keep track of receipts or documentation for individual expenses. Most people take the standard deduction because it’s simple and often provides a decent break.
- Itemized Deductions – This is where you list specific expenses—like mortgage interest, property taxes, and eligible closing costs. You only want to itemize if your total deductions add up to more than the standard deduction.
For the 2025 tax year, the standard deductions are:
- $15,000 for single filers
- $30,000 for married couples filing jointly
- $22,500 for heads of household
If your qualifying expenses (including things like mortgage interest, points, and prepaid property taxes) exceed those numbers, itemizing could reduce your taxable income more than taking the standard deduction. But if your total deductions fall short, sticking with the standard deduction makes more financial sense. So in order to deduct any closing costs, you’ll need to itemize and it only benefits you if your total deductions are higher than the standard amount.
What Closing Costs Are Tax Deductible?
While most closing costs aren’t tax deductible, a few specific ones can offer real savings. If you plan to itemize your deductions on your tax return, it’s worth knowing which expenses you can write off.
Let’s walk through the key ones:
1. Mortgage Points (Also Called Discount Points)
Mortgage points are optional fees you can pay to your lender upfront in exchange for a lower interest rate over the life of your loan. One point typically equals 1% of your loan amount. It’s a way to “buy down” your rate and reduce what you pay in interest over time.
Here’s when mortgage points are deductible:
- You’re buying or refinancing your primary residence
- The points are a standard practice in your area
- They’re listed clearly on your Closing Disclosure
- You paid for them out of pocket (not rolled into the loan balance)
If you meet these criteria, you may be able to deduct the full amount of points the year you paid them. However, if the IRS considers your situation ineligible for a full deduction, such as in a refinance, you’ll typically need to spread the deduction across the life of your loan. If you refinance again later, any undeducted points from the original loan might be deductible that year—so keep those records handy.
2. Prepaid Property Taxes
Most lenders require you to prepay a portion of your property taxes at closing, especially if you’re setting up an escrow account. While you’re not getting charged extra, you’re paying those taxes earlier than usual—and in some cases, that early payment can be deducted.
Here’s how it works:
- These prepaid taxes must apply to a specific tax period
- They count toward your State and Local Tax (SALT) deduction, which is capped at $10,000 total per household (this includes state income, property, and sales taxes combined)
If you’re already near or over the SALT cap due to other state or local taxes, you may not benefit from deducting prepaid property taxes—but it’s still smart to track them and include them in your records.
3. Mortgage Interest Paid at Closing
Your first mortgage payment usually doesn’t cover the day you close through the end of that month, that interest is typically paid upfront at closing. For example, if you close on July 10, your lender may collect interest for July 10–31 right away.
That prepaid interest is tax deductible, just like regular mortgage interest, and should be reported on Schedule A of your tax return.
Here are the loan limits that apply:
- If you bought your home after December 15, 2017, you can deduct interest on up to $750,000 in mortgage debt
- If you purchased before that date, the limit is $1 million
Your lender will usually report this prepaid interest on Form 1098, which you’ll receive early in the new year. Double-check it against your Closing Disclosure to ensure everything lines up.
While these deductions might not seem huge individually, together they can make a meaningful difference, especially in your first year of homeownership, when these prepaid costs tend to stack up. Just be sure to save your paperwork, compare it with your Form 1098, and consider working with a tax professional to make the most of what’s available.
What Closing Costs Aren’t Tax Deductible?
While there are a few key closing costs that may reduce your tax bill, the reality is that most of what you pay at closing doesn’t qualify for a deduction on your federal income tax return.
These non-deductible costs are still important, but they’re considered part of the cost of doing business when buying or refinancing a home—not expenses that the IRS allows you to write off.
Here are some of the most common closing costs you can’t deduct:
- Title Insurance (Lender’s Policy): This protects your lender in case someone later claims ownership of your home. Even though it’s a required fee, it’s not deductible.
- Appraisal Fees: This is the cost of confirming the value of the home for your lender. It’s not a tax-deductible expense.
- Home Inspection Fees: If you had a home inspection before closing, it’s a smart move, but unfortunately, the IRS doesn’t consider it deductible.
- Loan Origination Fees (if not used to buy points): These are administrative fees lenders charge to process your loan. Unless a portion is clearly defined as mortgage points, they’re not deductible.
- Legal or Attorney Fees: You may have legal representation at closing, especially in certain states, but these professional fees aren’t tax write-offs.
- Credit Report Fees: If your lender ran your credit as part of the loan approval process (which is standard), this small fee is not deductible.
- Homeowners Insurance Premiums: Paying the first year’s premium upfront is common, but it’s not a deduction on your federal return.
- Homeowners Association (HOA) Dues or Initiation Fees: These are monthly or annual costs of maintaining your community.
- Escrow or Notary Fees: These fees help facilitate the closing process, but they’re considered part of the home purchase.
- Transfer Taxes and Recording Fees: Local governments charge these fees to transfer ownership and officially record the deed.
Why Keep Records Anyway?
Even though these costs aren’t deductible now, they still matter later. That’s because many of them can be added to your home’s cost basis or the total amount you’ve invested in the property.
When you sell your home down the road, your cost basis helps determine your capital gains (your profit from the sale). A higher cost basis can reduce your taxable gain and potentially save you thousands in taxes. So while these fees don’t help during the year you buy, they can help you when it’s time to sell.
When Are These Costs Deductible?
Not all deductible closing costs are treated the same way on your tax return. Some can be claimed right away, while others must be spread out over time—or only come into play when you eventually sell the home. Understanding the timing of these deductions helps you avoid common mistakes and gives you a clearer picture of what to expect.
Let’s break down the three key timeframes when closing costs may impact your taxes:
In the Year of Purchase
If you purchased a home this year and plan to itemize your deductions, you may be able to write off certain costs right away. These include:
- Mortgage interest paid at closing (often covering the days between your closing and your first mortgage payment)
- Prepaid property taxes, subject to the annual SALT deduction cap
- Mortgage points, if they qualify under IRS rules for full deduction in the year they were paid
These deductions would be claimed on Schedule A of your tax return for the year the purchase took place. To claim them, you’ll need documentation—such as your Closing Disclosure and Form 1098 from your lender. If your itemized deductions exceed the standard deduction, these costs could reduce your taxable income and save you money in the same year you bought the home.
Over the Life of the Loan
Some deductible costs can’t be claimed all at once. This is especially common in refinancing situations or when your mortgage points don’t meet all the IRS criteria for a full-year deduction. In these cases, you may be required to deduct the cost gradually, over the term of your loan.
For example, if you paid $3,000 in points on a 30-year mortgage, you might be allowed to deduct $100 per year. It’s a slower benefit—but still a benefit, especially if you plan to stay in the home long term.
It’s also important to know that if you refinance again or pay off your mortgage early, any remaining undeducted points may become deductible at that time. Keep good records so you’re prepared if your situation changes.
When You Sell the Home
Even if certain closing costs aren’t deductible in the year you buy, they might still help you down the road when you sell. That’s because many of these expenses, like title fees, legal costs, and transfer taxes, can be added to your home’s cost basis.
Your cost basis is essentially what you invested in the property. When you sell, the IRS taxes you on the profit or the sale price minus your cost basis. The higher your cost basis, the smaller your taxable gain. So while you won’t get a tax break on these costs today, they can help you reduce your capital gains tax later—especially if your home appreciates significantly in value.
This is especially important for homeowners who may exceed the capital gains tax exclusion (currently $250,000 for single filers, $500,000 for married couples filing jointly). Adjusting your cost basis with these expenses could mean the difference between paying tax on your profit—or paying nothing at all.
Selling a Home? Closing Costs and Capital Gains Tax
If you’ve owned your home for a few years, there’s a good chance it’s increased in value. That’s great news—especially if you’re ready to sell. But when you make a profit on a home sale, the IRS may want a share. This is where capital gains tax comes into the picture.
Fortunately, many homeowners qualify for a generous tax break called the capital gains exclusion.
Here’s how it works:
- If you’re single, you can exclude up to $250,000 in profit from capital gains tax.
- If you’re married and filing jointly, the exclusion jumps to $500,000.
This means if you bought your home for $400,000 and later sell it for $900,000, a married couple might pay no tax at all on that $500,000 gain, assuming they meet the requirements.
To use this exclusion, you’ll need to meet these criteria:
- Ownership Test: You must have owned the home for at least two out of the last five years before the sale.
- Use Test: The home must have been your primary residence for at least two of those five years.
- No Recent Use: You haven’t claimed this exclusion for another home in the last two years.
If you meet all three, you’re in good shape. But if your profit exceeds the exclusion, or if you don’t meet the criteria, you may owe taxes on the portion that goes beyond the limit.
How to Find and Report Deductible Closing Costs
Identifying which of your closing costs are deductible starts with reviewing the right documents and understanding how to report them. Here’s how to stay organized and accurate at tax time.
Reviewing Your Closing Disclosure and Form 1098
Your Closing Disclosure, a document you receive before finalizing your mortgage,outlines every fee associated with your transaction. This is where you’ll find key deductible items, including:
- Mortgage points (look for “Points paid to the lender”)
- Prepaid mortgage interest
- Prepaid property taxes
Cross-check this with your Form 1098, which your lender sends in January. It typically includes:
- Mortgage interest paid during the year
- Property taxes paid through escrow (note: not all lenders report this)
Use these two documents together to confirm what you can deduct and to avoid missing any eligible amounts.
Using IRS Forms (and When to Get a Tax Pro)
Here are the key IRS forms involved in reporting deductible closing costs:
- Schedule A (Form 1040): Used to itemize deductions, including mortgage interest, property taxes, and points
- Form 1098: Provided by your lender; shows what you paid in interest and possibly taxes
- Form 5695: Used if you’re claiming energy-efficiency-related tax credits
- Schedule D (Form 1040): If you’re selling your home and adjusting cost basis for capital gains
If your situation involves any of the following, it’s a smart move to consult a tax advisor:
- You’ve done a cash-out refinance and used part of the funds for something other than home improvement
- Your property is partially used for business or rental
- You’ve refinanced multiple times and have leftover points from past loans
A qualified tax pro can help you properly allocate deductions and avoid potential issues with the IRS.
Tips to Maximize Deductions & Offset Costs
Even if most closing costs aren’t deductible, there are smart strategies that can help you reduce your out-of-pocket expenses or increase your overall tax benefit.
- Explore down payment and closing cost assistance programs
Many local and state agencies offer grants or deferred loans to help cover these costs, especially for first-time buyers. - Time your purchase near the end of the year
This can help concentrate deductible interest, points, and taxes into one tax year, making it more likely you’ll exceed the standard deduction threshold. - Compare lenders carefully
Not all charge the same fees or require mortgage points. Shopping around can lower your overall closing costs and reduce what you pay out of pocket. - Structure points with itemized years in mind
If you know you’ll itemize in a particular year (due to high medical costs, donations, etc.), consider aligning your mortgage point payments to that year for maximum benefit.
These small decisions can add up to meaningful savings—both now and when you eventually sell.
FAQs About Closing Costs and Tax Deductions
Are closing costs tax deductible in all states?
Yes and no. Federal tax rules apply nationwide, but certain state-specific fees might not qualify as deductions. Always check your Closing Disclosure and consult IRS guidelines or a tax pro.
Can both buyer and seller deduct closing costs?
Generally, only the buyer can deduct mortgage-related items like interest, property taxes, and points. Sellers cannot deduct their closing costs, but some of those expenses—like real estate commissions or title fees—can be added to the home’s cost basis to reduce capital gains.
What if I split costs with someone else?
If you co-own the property, you can each deduct your share of the eligible costs. Just be sure your name is on the mortgage and that you both paid a portion of the expenses.
Can I deduct closing costs on a second home?
Some costs, like mortgage interest and property taxes, may still be deductible on a second home—but limits and rules vary. You cannot deduct points unless the second home qualifies under specific IRS rules.
Are moving expenses deductible?
Not for most people. As of now, moving expenses are only deductible for active-duty members of the military relocating due to a change in station. For everyone else, this deduction has been suspended through at least 2025.
Plan Ahead to Maximize Savings
While most closing costs aren’t tax deductible, certain key expenses, like mortgage points, prepaid property taxes, and mortgage interest, can help reduce your tax bill if you itemize. Understanding what’s eligible and keeping solid records can make a real difference when it’s time to file.
Be sure to review your Closing Disclosure and Form 1098, and consider speaking with a qualified tax advisor, especially if your situation involves a refinance, investment property, or a recent sale. With the right strategy, you can take full advantage of the tax benefits tied to homeownership.
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