Can You Deduct Closing Costs on Taxes: Points, Interest, Property Tax

You can deduct closing costs on taxes only in narrow situations. When you buy a home, three categories qualify for a deduction in the year of purchase: property taxes, prepaid mortgage interest (including discount points), and, starting in 2026, mortgage insurance premiums. Everything else on your Closing Disclosure either gets added to your property’s cost basis to reduce your taxable gain when you eventually sell, or gives you no tax benefit at all. And the three deductible items only help if you itemize.

The Itemizing Threshold Comes First

All of the deductible closing costs show up on Schedule A, so they matter only if your total itemized deductions beat the standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of household.¹ A closing that lands late in the year, with a heavy property tax proration and several thousand dollars in prepaid interest and points, can sometimes push you over that threshold in the purchase year even if you take the standard deduction in other years. Run the numbers before assuming closing costs will help you.

Property Taxes You Paid at Closing

Buyers and sellers split property taxes at closing based on how many days each party owned the home during the tax period. You can deduct only the portion covering days after you took title. The prorated amount appears on your Closing Disclosure: annual tax bill divided by 365, multiplied by the number of days you owned the property that year.²

The state and local tax (SALT) cap limits how much of that deduction you can actually use. For 2026, the cap is $40,400 for most filers and $20,200 for married filing separately.³ That cap covers state and local property taxes, income taxes, and sales taxes combined. If your state income tax withholding already fills that bucket, the property tax proration from closing adds nothing.

Prepaid Mortgage Interest

When you close partway through a month, the lender charges interest from the closing date through the end of that month. This per-diem interest is fully deductible in the year you pay it, subject to the overall mortgage interest deduction limits. For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt, or $375,000 if married filing separately.⁴

Your lender reports prepaid interest on Form 1098 alongside all other mortgage interest paid during the year. You should receive that form by the end of January.⁵ Even a few days of interest on a December closing counts.

Points on Your Purchase Loan

Points are upfront charges you pay the lender to buy down your rate. One point equals 1% of the loan amount, so one point on a $400,000 mortgage costs $4,000. Points on a purchase loan for your primary residence can be deducted in full in the year you pay them, but only if all of the following are true:⁶

The loan is for buying, building, or improving the home you live in most of the time, and that home secures the mortgage.
Paying points is a standard business practice in your area, and the amount charged is in line with what’s typical locally.
You brought enough cash to closing to cover the points. Funds borrowed from the lender or broker don’t qualify. Seller-paid points count, but you must reduce your home’s basis by that amount.
The points are calculated as a percentage of the loan principal and shown clearly on your settlement statement.

Miss any of those, and you must spread the deduction over the life of the loan. On a 30-year mortgage, that means 1/30th of the total each year.⁷ Your Form 1098 will show both deductible and amortizable points.

Mortgage Insurance Premiums Starting in 2026

The deduction for private mortgage insurance and government mortgage insurance premiums used to expire and get renewed on a rolling basis. The One Big Beautiful Bill Act made it permanent starting with the 2026 tax year. If you put less than 20% down and your lender requires mortgage insurance, those premiums are deductible as mortgage interest on Schedule A.⁴

The deduction phases out as income rises. It starts shrinking once your adjusted gross income exceeds $100,000 ($50,000 if married filing separately), losing 10% for every $1,000 above that threshold. At $110,000 AGI, or $55,000 filing separately, it disappears entirely.

Closing Costs That Go Into Your Cost Basis

Many closing costs can’t be deducted right now but still deliver a tax benefit when you sell. These get added to your home’s cost basis, which is the figure the IRS uses to calculate taxable profit at sale. Higher basis, smaller gain. Buy at $350,000, capitalize $6,000 in closing costs, sell later at $500,000, and your gain is calculated against a $356,000 basis rather than $350,000.

The IRS treats these closing costs as additions to basis:⁸

Abstract fees, owner’s title insurance premiums, and legal fees for the title search and deed preparation.
Recording fees charged by the local government to record the deed and mortgage.
State and local transfer or stamp taxes assessed on the transfer of ownership, when paid by the buyer.
Property boundary surveys required for the transaction.
Fees for installing utility connections to the property.
Any seller obligation you agreed to cover, such as the seller’s back taxes or their share of recording fees.

The simple test: if you would have paid the fee even with an all-cash purchase, it’s a cost of acquiring the property and belongs in your basis.²

Closing Costs With No Tax Benefit

Several common charges are treated as personal expenses. They don’t qualify for a deduction and can’t be added to basis:²

The lender’s appraisal fee.
Credit report fees.
Lender’s title insurance (the policy that protects the lender). The owner’s title insurance policy is different and does add to basis.
Home inspection fees.
Loan assumption fees and mortgage application charges.
Homeowners association initiation fees and transfer fees.
Prepaid homeowner’s insurance premiums collected at closing.

Most of these relate to qualifying for the mortgage or to the ordinary personal expense of owning a home. They come out of pocket with no offset.

Refinancing Is Different

If you’re wondering about a refinance rather than a purchase, the rules tighten. Most settlement fees on a refinance of a primary residence are not deductible at all, and they don’t add to your basis either.

Points paid on a refinance cannot be deducted in full in the year you pay them. They must be spread across the loan term. Refinance into a 15-year mortgage, and you deduct 1/15th of the points each year.⁶ One useful wrinkle: if you had unamortized points left from a prior refinance and you refinance again, you can deduct the remaining balance of those old points in the year the old loan is paid off.

Rentals and Investment Properties Follow Different Rules

If the property is a rental rather than your home, most of the analysis above changes. Many costs that offer nothing to a homeowner become either immediately deductible as rental expenses or recoverable through depreciation on the property’s basis over 27.5 years for residential rental property.⁹ Mortgage insurance premiums on rental property are deductible as a rental expense in the year paid.¹⁰ The SALT cap also doesn’t apply to property taxes on rentals, because those taxes come off as business expenses rather than personal itemized deductions.³ If you’re buying to rent, work through the rental rules specifically rather than the homeowner rules above.

Keep Your Closing Disclosure

Your Closing Disclosure (or HUD-1 on older transactions) is the only document that itemizes every fee you paid. It’s what proves your basis adjustments when you eventually sell. The IRS requires you to keep property records until the statute of limitations expires for the tax year in which you sell the property.¹¹ Since people often own homes for decades, that means holding onto this paperwork for as long as you own the home plus at least three years after the sale. Lose it, and you may lose the basis adjustments too, which means paying capital gains tax on money you already spent. A digital copy stored in two places is the minimum safeguard.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Publication 530 – Tax Information for Homeowners
3
Office of the Law Revision Counsel. 26 USC 164 – Taxes
4
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
5
Internal Revenue Service. About Form 1098, Mortgage Interest Statement
6
Internal Revenue Service. Topic No. 504 – Home Mortgage Points
7
Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction
8
Internal Revenue Service. Publication 551 – Basis of Assets
9
Internal Revenue Service. Rental Expenses
10
Internal Revenue Service. Rental Expenses
11
Internal Revenue Service. How Long Should I Keep Records