Writing off closing costs on your taxes is more limited than most buyers expect. Only three categories qualify for an immediate deduction in the year you close: prepaid mortgage interest, property taxes covering your ownership period, and qualifying loan discount points. Everything else either gets added to your home’s tax basis, where it reduces your taxable gain when you sell, or provides no tax benefit at all. And even the deductible costs only help if you itemize.
You Have to Itemize First
The deductible closing costs go on Schedule A of Form 1040, which means your total itemized deductions have to beat the standard deduction for your filing status. For the 2026 tax year, that’s $16,100 for single filers, $32,200 for married couples filing jointly, $24,150 for heads of household, and $16,100 for married individuals filing separately.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your itemized deductions don’t clear that number, none of what follows helps you this year.
Prepaid Mortgage Interest
When you close midway through a month, you pay per diem interest for the days between closing and month-end. That prepaid interest is fully deductible in the year you pay it. Your lender reports it on Form 1098, and it goes on Schedule A with the rest of your mortgage interest.2Internal Revenue Service. Other Deduction Questions
The deduction applies to interest on the first $750,000 of mortgage debt, or $375,000 if you’re married filing separately, for loans taken out after December 15, 2017. Older mortgages taken out before that date use the previous limit of $1,000,000, or $500,000 if married filing separately.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction If your combined mortgage balances exceed the applicable limit, only a proportional share of the interest is deductible.
Loan Discount Points
Discount points are an upfront payment to your lender in exchange for a lower rate. Each point equals one percent of the loan amount. Points paid to buy a primary residence can be deducted in full in the year of purchase, but only if you meet all of these conditions:3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
- The loan is secured by your primary residence.
- Charging points is standard practice in your area, and the amount is not more than what’s typically charged.
- The points are not a substitute for other charges normally listed separately on the settlement statement, such as appraisal, title, or attorney fees.
- The cash you brought to closing (down payment, earnest money, escrow deposits) equals at least the amount charged for points, and none of that cash was borrowed from the lender.
- The points are calculated as a percentage of the loan principal and clearly shown on the settlement statement.
Seller-paid points still belong to you as the buyer for deduction purposes, but you have to reduce your home’s tax basis by the amount the seller paid on your behalf.4Internal Revenue Service. Topic No. 504 – Home Mortgage Points Points that fail any of the tests above, or that were paid to cover other closing fees, have to be spread over the life of the loan instead.
Property Taxes Paid at Closing
You can deduct the property taxes paid at closing, but only the portion that covers your period of ownership. If the seller prepaid the full year and you reimbursed them at closing for the months after your purchase, only that reimbursement is deductible, not the full-year bill.
Property taxes fall under the state and local tax deduction, which is capped at $40,000 per year, or $20,000 if married filing separately.5Internal Revenue Service. Topic No. 503 – Deductible Taxes That cap covers your state and local income or sales taxes combined with property taxes, not each separately.
Mortgage Insurance Premiums
If you put less than 20 percent down, your lender likely required private mortgage insurance, or a mortgage insurance premium on an FHA loan. The deduction for these premiums had expired for the 2025 tax year. Recent federal legislation reinstated it on a permanent basis starting with the 2026 tax year, so borrowers paying PMI or FHA mortgage insurance should track those premiums and watch for updated IRS guidance, since the current publications still reflect the expired deduction.6Internal Revenue Service. Publication 530 – Tax Information for Homeowners
Costs That Add to Your Home’s Basis Instead
Most closing costs don’t produce an immediate write-off. They get added to your home’s tax basis, which is the figure the IRS uses to calculate your gain when you sell. A higher basis means a smaller taxable gain later on. The tax benefit is real, but it’s deferred, possibly by decades.
The IRS allows these settlement costs to be included in your basis:7Internal Revenue Service. Publication 551 – Basis of Assets
- Title insurance premiums, title search fees, and abstract fees.
- Attorney fees for preparing the deed and sales contract.
- Recording fees paid to the county.
- Transfer or stamp taxes paid by the buyer.
- Survey fees.
- Utility installation charges.
- Any seller obligations you agreed to cover, such as back taxes, recording fees, or repair charges the seller owed.
Keep every closing statement and receipt. The basis adjustment only matters when you sell, and the burden of proving it falls on you.
Closing Costs That Give You Nothing
Some closing costs are dead weight for tax purposes. They aren’t deductible, and the IRS won’t let you add them to basis either:8Internal Revenue Service. Publication 530 – Tax Information for Homeowners
- Homeowner’s insurance premiums, including fire and hazard insurance prepaid at closing.
- Rent, utilities, or other occupancy costs for living in the home before closing is final.
- Credit report fees, lender-required appraisal fees, and loan assumption fees.
The same treatment applies to most lender administrative charges — document preparation, notary fees, underwriting fees. If the cost relates to getting the mortgage rather than paying interest on it, the IRS treats it as a personal expense with no tax benefit for a personal residence.
If You’re the Seller
Sellers don’t itemize closing costs as deductions. Selling expenses instead reduce the amount realized on the sale, which is the figure used to calculate your capital gain. Real estate commissions, advertising, attorney fees related to the sale, seller-paid title costs, and transfer taxes all reduce that number.9Internal Revenue Service. Publication 523 – Selling Your Home
Most home sellers never owe capital gains tax anyway. Federal law excludes up to $250,000 of gain for single filers and $500,000 for married couples filing jointly, provided you owned and lived in the home for at least two of the five years before the sale.10Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence Above that threshold, every dollar of selling expenses directly reduces your taxable gain.
If You Refinanced
Refinance closing costs get worse tax treatment than purchase costs. Appraisals, title insurance, and attorney fees on a refinance are neither deductible nor added to basis. Points are the one meaningful exception, and even they generally can’t be deducted all at once — you spread the deduction evenly over the life of the new loan.4Internal Revenue Service. Topic No. 504 – Home Mortgage Points Pay $3,000 in points on a 30-year refinance, and you deduct $100 a year.
If you pay off that refinanced loan early by selling or by refinancing with a different lender, you can deduct all remaining unamortized points in the year the loan ends.11Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 6 That rule does not apply if you refinance with the same lender; in that case, the unamortized balance rolls into the points on the new loan and gets spread over the new loan’s term.3Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Second Homes
Mortgage interest and property taxes on a second home are deductible under the same rules as your primary residence, as long as you use the property personally.12Internal Revenue Service. Is the Mortgage Interest and Real Property Tax I Pay on a Second Residence Deductible? The $750,000 mortgage debt limit applies to the combined balances of your primary and second home mortgages, not each separately. Property taxes on the second home count against the same $40,000 SALT cap.5Internal Revenue Service. Topic No. 503 – Deductible Taxes
One important difference: points paid to purchase a second home have to be amortized over the loan term. Only points on a primary residence qualify for the full upfront deduction.4Internal Revenue Service. Topic No. 504 – Home Mortgage Points
Rental and Investment Properties
For rental properties, immediately deductible closing costs are limited to the same three categories available on a personal residence: interest, deductible property taxes, and qualifying points.13Internal Revenue Service. Rental Expenses
Where rentals differ is what happens to the rest. Title insurance, legal fees, recording fees, surveys, and transfer taxes get added to the property’s depreciable basis and produce a deduction each year through depreciation rather than sitting dormant until sale. For residential rental property, that depreciation schedule spans 27.5 years.