Most closing costs are not tax deductible, but some are

Closing costs are the fees you pay when you buy or refinance a home — title insurance, appraisal, attorney fees, inspections, and so on. The IRS treats most of these as part of your home's purchase price, not as a deduction. However, two categories of closing costs can reduce your taxes: mortgage interest and property taxes, but only if you itemize deductions on your tax return and only in the year you pay them.

The key distinction is whether the cost is tied to the loan itself or to the property. Costs that reduce the amount you owe on the loan — like points paid to lower your interest rate — can be deducted. Costs that are purely administrative or related to the transfer of the property generally cannot.

Key Takeaways

  • Mortgage points (prepaid interest) are deductible in the year you pay them if you bought the home with a purchase loan, but refinance points must be deducted over the life of the loan.
  • Property taxes paid at closing are deductible in the year you pay them, subject to the $10,000 annual cap on state and local taxes (SALT).
  • Most other closing costs — title insurance, appraisals, inspections, attorney fees, recording fees — are not deductible and become part of your home's cost basis instead.
  • You must itemize deductions on Schedule A to claim any of these; the standard deduction may be larger and eliminate the benefit.
  • Mortgage interest paid during the year is deductible only on loans up to $750,000 of home value, and only if you itemize.

Mortgage points and prepaid interest

Points are fees you pay upfront to reduce your interest rate. One point equals 1 percent of the loan amount. If you pay points when you purchase a home, you can deduct the full amount in the year you pay them — but only if you itemize deductions. If you refinance and pay points, you must deduct them over the life of the new loan, spreading the deduction across multiple years.

To claim points on a purchase, you will need Form 1098 (Mortgage Interest Statement) from your lender, which lists points paid. If points do not appear on Form 1098, ask your lender for a statement showing what you paid. The IRS requires documentation that the points were actually paid and that they reduced your rate.

Refinance points follow a different rule because the IRS treats them as part of the cost of the new loan. You deduct them ratably — that is, you divide the total points by the number of months in the loan term and deduct that amount each year. If you pay off the loan early or refinance again, you can deduct any remaining points in the year you pay off the loan.

Property taxes at closing

When you close on a home purchase, you often pay property taxes for the remainder of the year. These are deductible in the year you pay them, but they count toward the SALT cap — the $10,000 annual limit on deductions for state and local taxes (including income tax, sales tax, and property tax combined).

Your closing statement will show property taxes paid at closing separately. You report these on Schedule A under "Taxes you paid." If your total state and local taxes exceed $10,000, you will lose the excess; you cannot deduct more than $10,000 in any single year, regardless of how much you paid.

Closing costs that are never deductible

Title insurance, appraisals, home inspections, attorney fees, recording fees, transfer taxes, and homeowners insurance are not deductible. These are treated as part of your home's purchase price and increase your cost basis — the amount you subtract from the sale price if you sell the home later to calculate capital gains.

Some closing costs are paid by the seller instead of the buyer, which means you do not pay them and cannot deduct them. Your closing statement will show who paid each fee. Only costs you actually paid out of pocket can be deducted.

Itemizing versus the standard deduction

You can only claim mortgage interest, property taxes, or points if you itemize deductions on Schedule A of your tax return. If you take the standard deduction instead, you receive a flat deduction amount and cannot claim any of these costs separately.

For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly. If your itemized deductions (mortgage interest plus property taxes plus points) total less than the standard deduction, you will pay less tax by taking the standard deduction. Many homeowners, especially those with newer mortgages or lower property taxes, find that the standard deduction is larger and therefore do not benefit from itemizing.

Use Form 1040 Schedule A to itemize. You will need Form 1098 from your lender (which shows mortgage interest paid) and your property tax statements or closing documents (which show property taxes paid).

Mortgage interest deduction limits

Mortgage interest is deductible only on loans up to $750,000 of home value. If your loan exceeds $750,000, you can deduct interest only on the first $750,000. This limit applies to the total of all mortgages on your primary residence and one other home.

Form 1098 from your lender will show the total mortgage interest you paid during the year. You report this amount on Schedule A. The $750,000 limit rarely affects homeowners with typical mortgages, but it does apply to high-value properties or multiple mortgages on the same home.

Refinancing and deductions

When you refinance, you pay new closing costs. Points paid on a refinance must be deducted over the life of the new loan, not all in one year. Other refinance costs — appraisals, title insurance, attorney fees — are not deductible and are added to your cost basis in the home.

Mortgage interest on the refinanced loan is deductible in the year you pay it, subject to the $750,000 limit. If you refinance partway through the year, you will receive a Form 1098 showing interest paid only for the months you held the new loan.

Frequently Asked Questions

Can I deduct closing costs if I take the standard deduction?

No. Closing costs are deductible only if you itemize deductions on Schedule A. If you claim the standard deduction, you cannot deduct mortgage interest, property taxes, or points separately. Compare your itemized deductions to the standard deduction for your filing status to see which is larger.

What if my lender paid some of my closing costs?

Closing costs paid by your lender are not deductible by you because you did not pay them. However, the lender may have increased your interest rate to cover those costs, which means you will pay more interest over time — and that interest is deductible. Only costs you paid out of pocket count.

Do I deduct closing costs in the year I buy the home or when I sell it?

Mortgage interest and property taxes are deducted in the year you pay them. Other closing costs (title insurance, appraisals, inspections) are not deducted at all; instead, they increase your cost basis, which reduces your taxable gain if you sell the home later.

Can I deduct points paid on a home equity line of credit?

Points on a home equity line of credit are deductible only if the line is secured by your primary or secondary residence and the funds are used to buy, build, or improve that home. If you use the line for other purposes, the points are not deductible.

What if I paid property taxes at closing but my state does not have property tax?

Some states have no property tax or very low property tax. If you paid property taxes at closing in a state that does have them, those taxes are deductible subject to the $10,000 SALT cap. If your state has no property tax, you will not have property taxes to deduct at closing.