Can You Write Off Closing Costs? A Comprehensive Guide to Tax Deductible Closing Costs

Closing costs are unavoidable expenses associated with purchasing a home. While these costs can be substantial, there are limited opportunities to deduct them on your tax return. This guide will provide a detailed overview of which closing costs are tax deductible and how to claim these deductions.

Tax Deductible Closing Costs

The only closing costs that are tax deductible are:

• Mortgage points: Points are fees paid to the lender to reduce the interest rate on the mortgage. Each point typically costs 1% of the loan amount.
• Property taxes: Property taxes that are paid in advance at closing are deductible.

Non-Deductible Closing Costs

The following closing costs are not tax deductible:

• Title insurance
• Appraisal fees
• Attorney fees
• Recording fees
• Loan origination fees
• Credit report fees
• Home inspection fees
• Survey fees
• Transfer taxes

When to Deduct Closing Costs

Closing costs can be deducted in the year in which you close on the home, provided you itemize your deductions on your tax return. Alternatively, you can choose to spread the deduction for mortgage points over the life of the mortgage.

How to Claim the Deduction

To claim the deduction for closing costs, you must complete Schedule A (Form 1040), Itemized Deductions. The deduction is reported on line 8 of the form. You must attach a statement to your tax return that lists the closing costs you are deducting and provides the following information:

• The date of the closing
• The address of the property
• The name of the lender
• The amount of the loan
• The amount of the closing costs
• The amount of the deduction

Special Considerations

• Refinancing: When you refinance your mortgage, you can only deduct closing costs that are considered mortgage interest or real estate taxes. Fees for services, such as title insurance and appraisals, are not deductible.
• Cash-out refinancing: If you take out a cash-out refinance, where you receive a lump sum of cash in addition to refinancing your mortgage, you cannot deduct the closing costs.
• Standard deduction: The standard deduction is a set amount that you can deduct from your taxable income without itemizing your deductions. If your standard deduction is higher than the amount of your closing costs, it may not be beneficial to itemize your deductions.

Closing costs can be a significant expense when purchasing a home. While most closing costs are not tax deductible, there are a few exceptions. By understanding the rules and requirements, you can maximize your tax deductions and reduce your tax liability. It is important to consult with a tax professional if you have any questions or need assistance with claiming closing costs deductions on your tax return.