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Are closing costs tax deductible?
There are a lot of costs that come with buying a house. The down payment is just the start — you also need to factor in closing costs.
In fact, closing costs typically come to around 2% to 5% of the home’s purchase price. So, as home prices rise, closing costs do too. For the third quarter of 2024, the median sales price of a U.S. home was $420,400. That would result in $8,408 to $25,224 in closing costs. And that doesn’t even include your down payment.
Fortunately, a few of your closing costs may be tax deductible, which could help offset some of the fees you pay at the closing table.
Learn more: Closing on a house — What to expect and how to prepare
In this article:
What are closing costs?
Closing costs are the fees you’ll pay to cover lender and third-party services in the mortgage loan process. The money compensates your mortgage company for originating the loan, your appraiser for assessing the property's value, the surveyor for conducting the property survey, and more. Closing costs also include expenses like real estate taxes, prepaid interest, and various forms of insurance (mortgage and homeowners insurance, commonly).
You pay for your closing costs along with your down payment when signing your final loan documents.
Dig deeper: Cash to close — what you’ll pay on closing day
What are tax deductions?
Tax deductions — also called tax write-offs — are expenses you can subtract from your annual taxable income. By lowering your income, this reduces your total tax bill.
Deductions come in two forms: standard and itemized. The standard deduction is a lump-sum deduction that all taxpayers qualify for. For the tax year 2024, it’s worth $14,600 for single filers. So, if you take this deduction and earn $100,000 for the year, you’d only pay taxes on $85,400 (100,000 - 14,600 = 85,400).
Itemized deductions are individual deductions. These include deductions related to your home mortgage or student loans, certain expenses you incur as part of work, interest earned on various investment products, and more. Each one reduces your taxable income, and the more you have, the more you save.
You cannot use both the standard deduction and itemized deductions. For this reason, it’s important to determine which method will save you the most money before filing your returns. We’ll dig deeper into these two types of deductions a little later.
Tax deductions for closing costs
Most closing costs cannot be deducted from your annual tax returns. There are a few exceptions, though, including the following:
Mortgage interest
The most significant write-off you’ll likely be eligible for is the mortgage interest deduction. This allows you to write off the interest you pay on your mortgage loan at closing — and over the year — from your annual taxable income.
You can deduct all the paid interest on mortgage balances up to $750,000 (or $375,000 if you’re a married couple filing your returns separately). The threshold doesn’t increase if you own more than one home — the total limit is the same regardless of your total mortgage balances.
To qualify for this deduction, your mortgage must be secured by what the IRS considers a “qualified home.” This can be a primary residence or second home, but it must have facilities for sleeping, cooking, and using the restroom. Houses, condos, co-ops, mobile homes, houseboats, and other properties can qualify as long as they meet these requirements and meet the IRS limits on renting out the space.
Dig deeper: Mortgage interest tax deduction — how it works and when it makes sense
Points
The cost of points — also called discount points or mortgage points — can also be deducted from your taxable income. Points are optional fees paid at closing that allow you to purchase a lower interest rate, either temporarily or for the life of the loan.
Keep in mind: For discount points to be tax deductible, you must incur the point costs on a mortgage used to either buy, build, or improve your primary residence. The amount paid for discount points also can’t exceed the amount generally paid in your area.
Points are typically deducted “ratably” on your returns, meaning the deduction is spread out equally across all the payments of your loan term. For example, if your points cost $5,000 and you have a 30-year loan, that $5,000 would be divided by 360 (the number of months in your loan term), with you deducting 12 months' worth every year.
Read more: Are mortgage points tax deductible? Sometimes — here are the rules.
Property taxes
You’ll typically prepay a portion of your property taxes at closing, which can also be tax deductible. Technically, these are considered part of your “SALT” — State and Local Taxes. The IRS allows you to write off no more than $10,000 in these types of taxes annually (or $5,000 if you’re married filing jointly).
Learn more: Property tax deductions — How much can you write off?
Is mortgage insurance tax deductible?
You might find some advice telling you that mortgage insurance is tax deductible too, but that’s no longer true. According to the IRS, this deduction expired on Dec. 31, 2021, and has not been renewed. So, if you pay for private mortgage insurance on a conventional loan or mortgage insurance premiums on an FHA loan, the cost is no longer tax deductible.
Read more: How to get rid of private mortgage insurance (PMI)
Itemizing deductions vs. taking the standard deduction
It’s important to remember that the above fees are only deductible if you itemize your tax returns. If you opt to take the standard tax deduction, you won’t be able to write off individual costs and expenses like this.
The standard deduction for the 2024 tax year (which you will file in 2025) is $29,200 for married couples filing jointly, $14,600 for single filers, and $21,900 for the head of a household.
For the 2025 tax year (which you will file in 2026), it will be $30,000 for married couples filing jointly, $15,000 for single filers and married couples filing separately, and $22,500 for heads of households. If your total potential itemized deductions are less than the standardized limits, the standard deduction is likely your best bet — but consult a tax professional to be sure.
Dig deeper: Standard deduction vs. itemized — how to decide which tax filing approach is right
Ways to reduce or offset your closing costs
Tax deductions aren’t the only way to make pricey closing costs easier to bear. You can also seek help covering those costs — maybe ask for a donation from friends or family, start a crowdfunding campaign, or look for down payment or closing cost assistance programs in your area. Many down payment assistance programs do not need to be repaid as long as you live in the home for a certain amount of time.
You can also improve your credit score before applying for your loan, as this may qualify you for a lower down payment or interest rate, thus reducing your total up-front costs of buying a home.
Finally, shopping around for your mortgage lender and third-party service providers can help too. To see which closing costs you can price-shop for, look at page 2 of the Loan Estimate your mortgage lender gives you. There should be “Services You Cannot Shop For” and “Services You Can Shop For” sections clearly outlined.
Tax-deductible closing costs FAQs
What closing costs are tax deductible?
Most closing costs — including recording fees, title insurance, and loan origination fees — are not tax deductible. There are a few exceptions, though. You can typically deduct mortgage interest, discount points, and property taxes, with some limits. You should also make sure itemizing your return makes more sense than taking the standard deduction. A tax professional can help you analyze this.
What closing costs are tax deductible when selling a home?
If you sold a home in any given tax year, you can write off the same costs a buyer can — things like mortgage interest and property taxes, for instance. You can also exclude capital gains on your sale (up to $250,000 if you file your returns solo or $500,000 if you’re married filing jointly), though this is an exclusion and not technically a deduction.
When you buy a house, what expenses are tax deductible?
Homeowners have lots of tax deductions and credits at their disposal. You can deduct property taxes and mortgage interest or pursue certain credits like those for making energy-efficient improvements to your home. If you have a home office, you may be able to write off expenses for that as well.
This article was edited by Laura Grace Tarpley.
