How to Deduct Closing Costs on Taxes

When you purchase a home you can deduct your loan origination points, if you pay any as they are considered interest by the lender, therefore, tax deductible. You can also deduct any pro-rated interest and property taxes as well. You will need to itemize on schedule A when you file your income tax returns.

Difficulty: Moderately Easy

Instructions

Things You'll Need:

• 1. You will need a copy of your closing statement on the purchase of your property, this is called a HUD 1.

1. You need a copy of your final closing statement, called a HUD 1. The closing statement will clearly show all your closing costs, including non-recurring or one time only charges such as escrow and title fees as well as show recurring items that you will continue to pay once you occupy the home, such as interest and property taxes and insurance.

2. The tax deductible items as a buyer and seller are: pro-rated interest and property taxes.

3. Loan origination fees that are paid by either seller or buyer are considered tax deductible as they are pre-paid interest to the lender. The buyer may deduct the origination fee, even if it is paid by the seller.

Tips & Warnings

• Please be sure to consult a qualified tax preparer to make sure you are not missing any deductions. Programs such as Turbotax are also helpful.
• Tax laws change all the time, so it is worth the time and money to consult a tax professional.