ANSWERS: 1
  • "Closing costs" is the catch-all name for the taxes, fees and other items that a home buyer must pay when closing a mortgage loan. Several of the biggest costs you pay at closing are deductible on your income taxes.

    Identifying the Charges

    The closing agent will supply you with a "settlement statement," also known as a HUD-1 form. This form is an itemized list of all items paid at closing by the buyer and the seller.

    Mortgage Interest

    At closing, you may have to prepay daily mortgage interest charges from the closing date until the first of the next month. You may also have "points," interest charges that you prepay to get a better mortgage rate. Both of these are deductible as home mortgage interest.

    Taxes

    If you have to pay any property taxes at closing, you can deduct these on your income taxes. This includes property taxes paid by the seller that you reimburse.

    Mortgage Insurance

    If a buyer takes out a mortgage for more than a certain percentage of the sale price--often 80 percent--the lender will require mortgage insurance, which is prepaid at closing. Mortgage insurance is deductible, at least through 2010.

    Can't Pay?

    If you lack the cash to pay your closing costs, your lender may agree to roll those costs into your mortgage loan. Another option is to get the seller to agree to pay for certain things, known as "seller concessions." In either case, the aforementioned items are still tax deductible.

    Source:

    Real Estate ABC: What's Deductible?

    Broker Outpost: Seller Concessions

    Resource:

    HUD-1

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