What Closing Costs Can I Deduct from my Income Tax?

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Closing costs paid when purchasing a home are comprised of several charges. At closing the buyer receives a sheet that itemizes these expenses. The settlement sheet is vital for tax preparation as some of the expenses are deductible.

Real Estate Taxes

Real estate taxes are often divided between buyer and seller. The home buyer is able to deduct any amount of real estate taxes they paid at closing. Even if the seller paid the taxes, the buyer is credited with the portion of taxes due for the time that he owned the property.

Sales Tax

Taxpayers who itemize can deduct either sales tax paid or state and local income tax paid. Sales tax paid on home purchase is taken in addition to the standard sales tax amount.

Mortgage Interest

Taxpayers who itemize can deduct mortgage interest paid at closing on Schedule A. The amount paid at closing should be included on year end statement received from the lender.

Points

Points, often called loan origination fees, are prepaid interest that is usually not fully deductible in the year paid. The deduction is spread across the life of the loan unless they meet certain rules.

Mortgage Insurance Premiums

Mortgage insurance premiums paid for a new mortgage acquired January 1, 2007 or later can be deducted by taxpayers who itemize. The first of these payments will appear on the settlement sheet.

Source:

IRS Publication 530

IRS Publication 553, 2007

Resource:

IRS Publication 2009

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What Closing Costs Can I Deduct from my Income Tax?

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