Most closing costs are not tax deductible, but a few specific ones are
When you buy a home, you pay closing costs — fees for the loan, title search, appraisal, and other services. The IRS does not let you deduct most of these as a tax expense. However, two categories of closing costs can reduce your taxable income: mortgage interest and property taxes. The rest — title insurance, appraisal fees, attorney fees, recording fees, and homeowner's insurance — cannot be deducted.
The reason is that closing costs are treated as part of what you paid to acquire the home, not as an ongoing expense of owning it. You cannot deduct the purchase price of a house, so you cannot deduct the fees tied to buying it. Mortgage interest and property taxes are different because they are annual expenses you pay while you own the home, not one-time costs of the purchase itself.
Key Takeaways
- Mortgage interest paid during the year is deductible if you itemize deductions on your tax return, up to a loan balance of $750,000.
- Property taxes you pay are deductible up to $10,000 per year, whether they come from closing costs or regular annual bills.
- Points paid to lower your mortgage rate may be deductible in the year you pay them, depending on whether they are a loan origination fee or a discount.
- Title insurance, appraisal fees, attorney fees, and homeowner's insurance paid at closing are not deductible.
- You must itemize deductions on your tax return to claim any of these — the standard deduction may be larger and require no itemization.
How mortgage interest deduction works
If you took out a mortgage to buy the home, any interest you paid during the tax year is deductible. This applies to interest paid at closing (called prepaid interest) and to monthly payments throughout the year. The deduction is capped at interest on loans up to $750,000 of principal. If your mortgage is larger than that, you can only deduct interest on the first $750,000.
You can only claim this deduction if you itemize deductions on your tax return. Most people use the standard deduction instead, which is a flat amount the IRS lets you subtract without listing individual expenses. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If your itemized deductions (mortgage interest plus property taxes plus other deductible expenses) add up to less than the standard deduction, you will get a larger tax break by taking the standard deduction and not itemizing at all.
Property taxes paid at closing and throughout the year
When you close on a home, the seller may have paid property taxes for part of the year. At closing, you reimburse the seller for those taxes — this is called a property tax proration. You can deduct this amount as if you had paid it yourself. You can also deduct property taxes you pay directly to your county or municipality during the year.
The total deduction for state and local property taxes is capped at $10,000 per year. This limit includes property taxes on your home, any other real estate you own, and state and local income taxes or sales taxes (you choose which). If you are married and filing separately, each spouse gets a $5,000 limit. Like the mortgage interest deduction, you must itemize to claim this.
Points and discount fees on your mortgage
When you get a mortgage, the lender may charge points — a fee equal to a percentage of the loan amount, usually 1 to 3 percent. Points are meant to lower your interest rate. If you pay points at closing, you may be able to deduct them, but the rules depend on what kind of points they are.
Discount points — points you pay to reduce your interest rate — are deductible in the year you pay them, as long as the loan is for your primary residence and the points are a standard charge in your area. Origination points — fees the lender charges to process the loan — are not deductible. Your closing disclosure will label each charge, so you can tell which is which. If you are unsure, ask your lender to clarify before closing.
If you refinance your mortgage later, points paid on the refinance cannot be deducted in one year. Instead, you deduct them over the life of the new loan. If you pay off the loan early or refinance again, you can deduct any remaining points in that year.
Costs you cannot deduct
Title insurance protects you and your lender against problems with the property's ownership history. The title company charges a one-time premium at closing. This is not deductible because it is a cost of acquiring the property, not an ongoing expense.
Appraisal fees, home inspection fees, attorney fees, recording fees, and transfer taxes are also not deductible. Homeowner's insurance premiums paid at closing are not deductible either. These are all treated as part of the cost of buying the home or as personal expenses, not as investment or business expenses.
If you paid for a home warranty or extended coverage at closing, that is also not deductible. However, if you pay for homeowner's insurance in later years, you still cannot deduct it — homeowner's insurance is a personal expense, not a tax-deductible one.
Itemizing versus taking the standard deduction
To claim any deduction for mortgage interest or property taxes, you must choose to itemize deductions on your tax return. This means listing out each deductible expense instead of taking the standard deduction. You should itemize only if your total deductible expenses exceed the standard deduction for your filing status.
For example, if you are married filing jointly and your mortgage interest is $8,000 and your property taxes are $6,000, your total itemized deductions would be $14,000. The standard deduction for 2024 is $29,200, so you would get a larger tax break by taking the standard deduction and not itemizing. But if your mortgage interest is $15,000 and your property taxes are $8,000, your itemized total is $23,000, which is still less than $29,200 — so the standard deduction is still better. You would need other deductible expenses, like charitable donations or medical costs, to make itemizing worthwhile.
Your tax software or tax preparer can calculate both scenarios and tell you which gives you the larger deduction. You do not have to decide in advance — you choose whichever method results in a lower tax bill.
Frequently Asked Questions
Can I deduct closing costs if I paid cash for the home?
No. Closing costs are not deductible whether you financed the home or paid cash. The only exception is property taxes, which are deductible if you itemize. Mortgage interest is only deductible if you have a mortgage, so paying cash means you have no mortgage interest to deduct.
What if I paid points to lower my interest rate — are those always deductible?
Discount points paid to lower your rate are deductible in the year you pay them, as long as the loan is for your primary residence and the points are a standard charge in your area. Origination points and other loan fees are not deductible. Your closing disclosure will show which charges are which, or you can ask your lender to clarify.
Can I deduct property taxes I paid to the seller at closing?
Yes. The property tax proration you pay at closing — reimbursement for taxes the seller already paid — counts as property tax you paid and is deductible up to the $10,000 annual limit. You deduct it the same way you would deduct property taxes you pay directly to your county.
Do I have to itemize to deduct mortgage interest?
Yes. Mortgage interest is only deductible if you itemize deductions on your tax return. If your itemized deductions are less than the standard deduction, you will get a larger tax break by taking the standard deduction instead, even though you cannot claim the mortgage interest.
What if my closing costs included homeowner's insurance?
Homeowner's insurance is not deductible, whether you pay it at closing or in monthly installments. It is a personal expense, not a tax-deductible one. The only insurance-related deduction available to homeowners is mortgage insurance premiums in certain situations, which has its own rules.