When You Can Deduct Closing Costs on Your Taxes

Most closing costs are not tax deductible, but some parts of them are

When you buy a home, you pay closing costs — fees for the loan, title search, appraisal, inspection, and transfer taxes. The IRS treats most of these as part of what you paid for the house itself, not as a deduction. However, two categories of closing costs can reduce your taxable income: mortgage interest and property taxes. The rest — title insurance, appraisal fees, homeowner's insurance, attorney fees, and recording fees — cannot be deducted in the year you close.

The distinction matters because it changes how you report the expense. Deductible closing costs go on Schedule A (Itemized Deductions) if you itemize. Non-deductible closing costs get added to your home's cost basis instead, which lowers your taxable gain if you sell the house later. Understanding which is which prevents you from missing a deduction or claiming one you are not may have access to to.

Key Takeaways

Mortgage interest and property taxes paid at closing are deductible on Schedule A in the year you close, but only if you itemize deductions.
Title insurance, appraisal fees, homeowner's insurance, attorney fees, and recording fees are not deductible and become part of your home's cost basis instead.
Loan origination fees and points paid to lower your interest rate are deductible, but points must be amortized over the life of the loan unless you meet specific conditions.
Your closing disclosure statement lists each fee separately, so you can identify which ones are deductible before you file.
If you do not itemize deductions, you cannot deduct any closing costs — the standard deduction is usually larger anyway.

Mortgage interest and property taxes: the two deductible pieces

Mortgage interest paid at closing is deductible in the year you close, reported on Schedule A. This is the interest portion of your first mortgage payment if the lender collected it upfront. If you took out a loan for $300,000 and paid $2,000 in interest at closing, that $2,000 reduces your taxable income. Going forward, you deduct mortgage interest every year you own the home.

Property taxes paid at closing are also deductible on Schedule A in the year you close. Many states require you to pay property taxes at closing for the remainder of the calendar year. If you close in June and owe $1,200 in property taxes for July through December, that $1,200 is deductible. However, the SALT deduction (state and local taxes) is capped at $10,000 per year, so if your property taxes plus state income tax or sales tax already exceed that cap, you cannot deduct the closing-day property taxes.

Both deductions require you to itemize on Schedule A. If your standard deduction is larger than your itemized deductions, you will not benefit from deducting closing costs. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married filing jointly, so many homebuyers do not itemize.

Discount points and origination fees: the complicated ones

Discount points are fees you pay upfront to lower your interest rate. One point equals 1 percent of the loan amount. If you borrow $300,000 and pay 2 points ($6,000) to reduce your rate from 7 percent to 6.5 percent, those points are deductible — but not all at once.

Points must be amortized over the life of the loan. If you pay $6,000 in points on a 30-year mortgage, you deduct $200 per year for 30 years. However, you can deduct all remaining points in the year you pay off the loan (by refinancing or selling). This rule applies to points on a purchase mortgage. Points on a refinance follow different rules and are amortized over the new loan term, not deducted when ready.

Loan origination fees — the lender's charge to process your loan — are not deductible. They become part of your home's cost basis. This is different from points, which reduce your interest rate. If your closing disclosure lists an origination fee separate from points, that fee is not deductible.

What does not count: the long list of non-deductible fees

Title insurance, appraisal fees, home inspection fees, homeowner's insurance, attorney fees, recording fees, transfer taxes, and survey fees are not deductible in the year you close. These are treated as part of the cost of acquiring the home, so they increase your cost basis instead. When you sell the house later, a higher cost basis means a lower taxable gain, so you do benefit from these expenses — just not in the year you close.

Some closing costs vary by state. Transfer taxes, for example, exist in some states but not others. Homeowner's association transfer fees are also non-deductible. Check your closing disclosure to see exactly what you paid and in what category the lender placed each fee.

How to find deductible costs on your closing disclosure

Your closing disclosure is a standardized form the lender must give you at least three business days before closing. It lists every fee, who pays it, and the amount. Section J lists all closing costs. Look for these line items:

Mortgage interest — listed under "Loan Costs" or "Prepaids." Deductible on Schedule A.
Property taxes — listed under "Prepaids" or "Other Costs." Deductible on Schedule A, subject to the $10,000 SALT cap.
Discount points — listed under "Loan Costs." Amortized over the loan term, or deductible in full if you pay off the loan that year.
Origination fees, title insurance, appraisal, inspection, homeowner's insurance, attorney fees, recording fees — not deductible. Add to cost basis.

If a line item does not match these categories, ask your lender or title company what it covers. Some fees have names that do not make their purpose obvious.

Reporting deductible closing costs on your tax return

Deductible closing costs go on Schedule A (Form 1040), Itemized Deductions. Mortgage interest goes on line 8 under "Interest You Paid." Property taxes go on line 5 under "Taxes You Paid." You must file Schedule A and itemize to claim these deductions — they do not reduce your income if you take the standard deduction instead.

If you paid points, you report them on Schedule A as well, but only the portion that is deductible that year. If you paid $6,000 in points on a 30-year mortgage, you deduct $200 in year one, $200 in year two, and so on. If you refinance or sell the home before the loan term ends, you can deduct all remaining points in that year.

Keep your closing disclosure and settlement statement with your tax records. The IRS may ask to see them if you claim mortgage interest or property tax deductions, especially in the first year of ownership.

When closing costs affect your cost basis instead

Non-deductible closing costs increase your home's cost basis. Cost basis is what you paid for the house, used to calculate your taxable gain when you sell. If you bought the house for $400,000 and paid $15,000 in non-deductible closing costs, your cost basis is $415,000. If you sell for $500,000, your taxable gain is $85,000, not $100,000.

This matters because capital gains tax on the sale of a primary residence is lower than ordinary income tax. Most homeowners owe no federal tax on the first $250,000 of gain (or $500,000 if married filing jointly), so a higher cost basis can mean the difference between owing tax and owing nothing. Keep all closing documents for as long as you own the home.

Frequently Asked Questions

Can I deduct closing costs if I do not itemize?

No. Deductible closing costs — mortgage interest and property taxes — only reduce your taxable income if you itemize on Schedule A. If you take the standard deduction instead, you cannot deduct any closing costs. However, non-deductible closing costs still increase your cost basis, which lowers your taxable gain when you sell.

What if I paid points to lower my interest rate?

Points are deductible, but you must spread the deduction over the life of the loan. If you paid $6,000 in points on a 30-year mortgage, you deduct $200 per year. If you pay off the loan early (by refinancing or selling), you can deduct all remaining points in that year.

Are property taxes at closing deductible if I already hit the $10,000 SALT cap?

No. The SALT deduction caps all state and local taxes — including property taxes, state income tax, and sales tax — at $10,000 per year. If your state income tax and property taxes already total $10,000, you cannot deduct the property taxes paid at closing.

Do I add non-deductible closing costs to my home's purchase price?

Yes. Non-deductible closing costs (title insurance, appraisal, inspection, attorney fees, recording fees) become part of your cost basis. This lowers your taxable gain when you sell, so you do benefit from these expenses eventually, just not in the year you close.

What if my lender paid some of my closing costs?

If the lender paid closing costs on your behalf, you still deduct the mortgage interest and property taxes you owe. The lender may have rolled those costs into your loan amount or charged you a higher interest rate instead. Either way, you deduct the interest and taxes you actually paid.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.