Are Closing Costs Tax Deductible? What to Deduct, Add to Basis, or Skip

Most closing costs are not tax deductible. When people ask whether closing costs are tax deductible, the honest answer is that only a few line items on a typical settlement statement qualify for a deduction in the year you close: mortgage points, prepaid mortgage interest, prorated property taxes, and (starting in 2026) private mortgage insurance. Several other costs quietly help you later by increasing your home’s cost basis, which can shrink your taxable gain when you sell. The rest are personal expenses with no tax benefit at all. The rules also shift depending on whether you bought, refinanced, or picked up a rental.

You Have to Itemize for Any of This to Matter

Every deductible closing cost below goes on Schedule A. You only benefit if your total itemized deductions clear the standard deduction. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.¹ If your mortgage interest, property taxes, and points don’t add up to more than that with your other itemized deductions, the closing-cost write-offs save you nothing. Buyers in year one often do clear the bar because early mortgage payments are mostly interest, but run the numbers before assuming.

There’s also a ceiling on the mortgage debt that qualifies for interest deductions. Loans closed after December 15, 2017 are capped at $750,000 ($375,000 if married filing separately); older loans keep a $1 million cap.² Points count as prepaid interest, so the same cap limits how much of them you can deduct if your loan is larger.

What You Can Deduct in the Year You Close

Mortgage Points on a Purchase

Mortgage points (also called loan origination fees or discount points) are the biggest closing-cost deduction most buyers see. Each point equals 1% of the loan amount. You can deduct the full amount in the year of closing, but only if you meet every one of the IRS requirements:

The loan is for your main home.
Charging points is standard practice in your area, and the amount is not more than what’s typical for that type of loan.
You use the cash method of accounting (nearly all individuals do).
The money you brought to closing (down payment, earnest money, escrow deposits) equals or exceeds the points charged. You cannot have borrowed the point funds from your lender.
The loan is used to buy or build your main home.
The points are clearly identified on your closing disclosure and calculated as a percentage of the loan principal.
The points are not a substitute for fees normally listed separately, like appraisal or title charges.

Miss any of these and you have to spread the deduction over the life of the loan instead.³ Your lender reports the deductible amount in Box 6 of Form 1098; check that figure against your settlement statement.⁴

Prepaid Mortgage Interest

When you close mid-month, your lender charges interest from the closing date through the end of that month. This prepaid interest appears as its own line on the settlement statement and gets folded into your mortgage interest deduction for the year of purchase.⁵ It’s usually small, but closing early in the month gets you a couple more weeks of it.

Prorated Property Taxes

Buyers often reimburse the seller for property taxes the seller had already paid past the closing date. That reimbursement counts as property tax paid by you and is deductible. The IRS specifically excludes it from your home’s basis because you’re deducting it as tax instead.⁶ State and local taxes have their own cap: for 2026, $40,400 for most filers. Your prorated property tax counts against that cap along with your state income tax.

Private Mortgage Insurance

If you put down less than 20%, your lender likely required PMI. Starting in 2026, PMI premiums on acquisition debt are treated as deductible mortgage interest under recent federal legislation. In prior years this deduction had repeatedly expired and been extended. If you’re paying PMI on a new purchase, those premiums now reduce taxable income alongside your regular mortgage interest.

Costs That Add to Your Home’s Basis Instead

Some closing costs don’t get deducted now but raise your cost basis, which lowers the taxable gain when you sell. The IRS lets you add these to your purchase price:⁷

Owner’s title insurance
Legal fees for the title search, sales contract, and deed preparation
Recording fees paid to your local government
Survey fees
Transfer or stamp taxes⁸
Abstract of title fees
Utility installation charges

For many homeowners, the basis adjustment turns out to be academic. If you’ve owned and lived in your primary residence for at least two of the five years before selling, you can exclude up to $250,000 of gain ($500,000 for married couples filing jointly).⁹ If your total gain will fall under that, tracking basis won’t save you anything. If your home appreciates hard or you’re in a high-cost market, every documented dollar of basis matters.

Costs With No Tax Benefit at All

Plenty of closing costs offer nothing on either side: no deduction, no basis adjustment. These are treated as personal expenses:

Homeowners insurance premiums¹⁰
Appraisal fees required by the lender
Credit report fees
Home inspection costs
HOA transfer fees and homeowners association assessments
Loan assumption fees
Escrow deposits for future tax and insurance payments

The IRS draws a clean line here. Fees connected to getting the loan (appraisal, credit report, loan assumption) don’t produce a deduction and don’t go to basis.¹⁰ Fees connected to transferring the property (title, recording, surveys) go to basis. Personal costs (insurance, inspections, HOA) go nowhere. Sort your closing disclosure with that in mind and the picture clears up quickly.

If You Refinanced Instead of Bought

Points on a refinance follow a different rule. You can’t deduct them all at once. You spread the deduction evenly over the life of the new loan.³ Pay $3,000 in points on a 30-year refinance and you deduct $100 a year for as long as you hold the loan.

Two situations bend that rule. First, if you pay off the loan early or refinance with a different lender, you can deduct any unamortized points in the year the mortgage ends. Second, and this is where filers slip: if you refinance again with the same lender, you cannot take the remaining unamortized balance all at once. You add the leftover points to the new loan’s points and spread the combined total over the new term.³

One exception lets you deduct refinance points immediately. If you take cash out specifically to improve your main home and meet the same tests that apply to purchase points, the portion of the points tied to the improvement funds can be deducted in full in the year paid.¹¹ Only the improvement portion qualifies. If half the refinance pays for a kitchen renovation and half replaces existing debt, only half the points get the immediate write-off.

If a Seller Paid Your Points

Sellers sometimes cover points on the buyer’s loan as part of the deal. The IRS treats seller-paid points as if you paid them, so you can deduct them in the year of purchase under the same rules that govern buyer-paid points.¹¹ The trade-off: you must reduce your home’s cost basis by the amount of seller-paid points you deduct. You’re taking the tax benefit now against a slightly higher taxable gain later. For most homeowners who will sit under the Section 121 exclusion at sale, that’s an easy call. The seller can’t deduct those points but can treat them as a selling expense that reduces their own gain.

If the Property Is a Rental

Rental and investment properties don’t play by the same rules. Points on a rental property loan are never fully deductible in the year paid, whether it’s a purchase or a refinance. You deduct them over the life of the loan on Schedule E.¹²

Property-related settlement costs (title insurance, legal fees, recording fees, transfer taxes, surveys) still go to basis. The difference is that rental basis is recovered through depreciation over 27.5 years for residential rental property, so those costs feed annual deductions rather than waiting for a sale. The items that are non-deductible for a personal residence remain non-deductible for a rental, and they don’t get added to basis either.¹³

Documents to Keep

Your closing disclosure is the single most important tax document from a home purchase. It lists every fee, identifies who paid it, and breaks out points separately. Keep it for as long as you own the home, plus at least three years after you file the return that reports the sale. If you’re claiming basis adjustments from costs paid a decade earlier, the closing disclosure is your proof.

Your lender is required to report deductible points on Form 1098, Box 6, for the year of closing.⁴ Compare that number against your settlement statement. For amortized refinance points, keep a running spreadsheet of how much you’ve deducted each year and how much remains. If you pay off the loan or switch lenders, that running total is what tells you the balance you can claim.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
3
Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction – Section: Points
4
Internal Revenue Service. Instructions for Form 1098
5
Internal Revenue Service. 2025 Instructions for Schedule A (Form 1040) Itemized Deductions
6
Office of the Law Revision Counsel. 26 USC 1012 – Basis of Property-Cost
7
Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners – Section: Basis
8
Internal Revenue Service. Publication 551, Basis of Assets
9
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
10
Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners
11
Internal Revenue Service. Topic No. 504, Home Mortgage Points
12
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
13
Internal Revenue Service. Publication 527 (2025), Residential Rental Property