When buying or refinancing a home, closing costs can feel like a hefty financial hit. The good news? Some of those costs might be tax-deductible. But which ones qualify—and which don’t?
Whether you’re a first-time buyer, seasoned homeowner, or mortgage industry professional, understanding how closing costs impact your taxes could mean serious savings. In this guide, we break down what’s deductible, what isn’t, and how to make the most of your mortgage tax benefits.
Some closing costs are tax-deductible, but most are not. Common deductions include mortgage interest, property taxes, and mortgage points. Expenses like title insurance, appraisal fees, and loan origination fees are generally not deductible. Always consult the IRS or a tax advisor for your specific case.
What Are Closing Costs—and Why Do They Matter for Taxes?
Closing costs are the fees you pay to finalize a mortgage. They typically range from 2% to 6% of the loan amount and cover a wide array of services—like underwriting, appraisal, and legal documentation.
From a tax perspective, only certain costs offer deductible value, often tied to mortgage interest or property taxes. According to the IRS, these deductions help reduce your taxable income, potentially lowering your overall tax bill.
Key terms to know:
- Settlement Statement (Closing Disclosure): Itemizes all your closing costs.
- PMI/MIP: Mortgage insurance premiums may be deductible depending on current IRS rules.
- Escrow property taxes: May be deductible if paid at closing for the upcoming tax year.
Which Closing Costs Are Tax-Deductible?
Let’s separate fact from fiction. Here are the main closing costs that may qualify for tax deductions:
Deductible Closing Costs
- Mortgage Interest (Prepaid at Closing)
- Includes interest paid upfront for the first month of your loan.
- Itemizable on Schedule A of your tax return.
- Property Taxes Paid at Closing
- If you prepaid property taxes via escrow at closing, this amount is often deductible for the year they apply.
- Mortgage Points (Discount Points)
- If you bought points to lower your interest rate, they may be fully deductible in the year of purchase for a primary residence.
- For refinances, points are usually deducted over the life of the loan.
- Mortgage Insurance Premiums (MIP or PMI)
- Deductibility has varied over the years based on legislative changes.
- As of 2024, MIP was deductible but subject to expiration—check current IRS updates.
Non-Deductible Closing Costs
- Loan origination fees
- Title insurance
- Appraisal fees
- Abstract and recording fees
- Real estate commissions
- Home inspection costs
- Attorney fees
Note: These non-deductible costs may still add to your home’s cost basis, which can reduce your taxable gain when selling (useful for capital gains tax planning).
When Should You Itemize Mortgage Tax Deductions?
You should itemize deductions if your total eligible expenses exceed the standard deduction for your filing status.
2025 Standard Deduction Estimates (subject to IRS updates):
- Single: ~$14,600
- Married Filing Jointly: ~$29,200
- Head of Household: ~$21,900
If your mortgage interest, property taxes, and other deductions add up to more than these amounts, itemizing makes sense.
Comparison Table: Deductible vs. Non-Deductible Closing Costs
Closing Cost |
Tax-Deductible? |
Notes |
| Mortgage interest (prepaid) | ✅ Yes | Only for primary residence; itemized on Schedule A |
| Property taxes at closing | ✅ Yes | Deductible for the year paid, if itemized |
| Mortgage points (discount) | ✅ Yes | Immediate deduction for purchase; prorated if refinancing |
| Mortgage insurance (PMI/MIP) | ✅/❌ Conditional | Check IRS rules for current year |
| Title insurance | ❌ No | Considered part of property purchase, not deductible |
| Loan origination fees | ❌ No | Typically a service fee, not interest |
| Home appraisal or inspection | ❌ No | Required for closing but not eligible for deduction |
How to Deduct Closing Costs on Your Taxes: Step-by-Step
Step 1 – Review Your Closing Disclosure
Find your Settlement Statement or Closing Disclosure to identify each fee.
Step 2 – Separate Deductible Items
Highlight items like prepaid interest, property taxes, and points.
Step 3 – Itemize Your Deductions
Use IRS Schedule A to report deductions. Most mortgage-related deductions go here.
Step 4 – Consult the IRS or a Tax Professional
Some deductions change year to year. A professional ensures you’re maximizing benefits and staying compliant.
FAQs About Tax-Deductible Closing Costs
Which closing costs are tax-deductible when buying a home?
Generally, mortgage points, prepaid interest, and property taxes paid at closing are deductible.
Can I deduct property taxes paid into escrow?
Yes, if the taxes were paid in advance and applied to the year of the purchase, they’re typically deductible.
Are closing costs tax-deductible for rental properties?
Not immediately. Many costs must be capitalized or depreciated over time. Consult a tax advisor.
Are refinance closing costs tax-deductible?
Mortgage points may be deductible over the life of the loan. Other costs usually are not.
How can I use closing costs to reduce capital gains tax?
Non-deductible costs like title fees and attorney charges can be added to your home’s cost basis, reducing taxable gain on a future sale.
The Bottom Line
Only a few closing costs are tax-deductible, but they can still offer meaningful savings—especially for homeowners who itemize. Knowing which fees qualify, tracking them properly, and consulting a tax professional can help you optimize your tax return and even reduce future capital gains exposure.
Want to stay ahead of mortgage tax strategies? Subscribe to our newsletter for expert insights or connect with a home loan advisor to understand your closing costs before you sign.
