Are Closing Costs Tax Deductible?

Quick answer: Most closing costs are not tax deductible. The main exceptions are mortgage points (if you meet IRS requirements), prepaid mortgage interest, and prepaid property taxes — all only if you itemize deductions on Schedule A. Appraisal fees, title insurance, attorney fees, and transfer taxes are not deductible.

See IRS Publication 530 for the full rules.

What You Can Deduct

The IRS allows deductions for only two types of closing costs on a home purchase: mortgage interest and real estate taxes.

1. Prepaid mortgage interest

Interest you pay at closing for the period between closing day and the end of the month. Deductible in the year you buy the home if you itemize.

Example: You close on March 15 and prepay interest through March 31. That $412 appears on your Form 1098 and is deductible on Schedule A.

2. Prepaid property taxes

Real estate taxes paid at closing (or through escrow) are deductible in the year paid if you itemize. Only your share — not the seller's prorated portion that covers their ownership period.

Example: You prepay $1,800 in property taxes at closing for your portion of the year. Deduct $1,800 on Schedule A if you itemize.

3. Mortgage points (discount points)

Points are prepaid interest. You can deduct them in the year paid if you meet all 9 IRS tests (see next section). One point equals 1% of the loan amount — $2,800 on a $280,000 loan.

Example: You pay 2 points ($5,600) on a $280,000 loan and meet all IRS tests. Deduct $5,600 on Schedule A in the year you buy.

If you do not meet all tests, deduct points over the life of the loan — $5,600 ÷ 360 months = $15.56/month.

See who should pay closing costs for what points and other fees cost at closing.

What You Cannot Deduct

Most closing costs are not deductible — but some can be added to your home's cost basis, which reduces capital gains tax when you sell.

Not deductible (but may add to basis):

Cost	Deductible?	Added to basis?
Appraisal fee	No	No
Title search and insurance	No	Yes (owner's policy)
Attorney fees	No	Yes
Recording fees	No	Yes
Transfer / stamp taxes	No	Yes
Survey	No	Yes
Home inspection	No	No
Loan origination fee	No*	No

*Origination fees may qualify as "points" if they meet IRS point tests.

Why these are not deductible: The IRS treats them as costs of acquiring property, not ongoing expenses. You recover them when you sell through a higher cost basis — not through annual deductions.

Transfer taxes example: You pay $2,100 in Florida deed doc stamps. Not deductible on Schedule A. Added to your home's basis, reducing taxable gain by $2,100 when you sell.

See how much are closing costs in Florida for Florida-specific tax amounts.

How to Deduct Mortgage Points

IRS Publication 530 lists 9 tests to deduct the full amount of points in the year paid. If you fail any test, amortize points over the loan term.

The 9 IRS tests for full points deduction:

1. Loan is secured by your main home
2. Paying points is an established business practice in your area
3. Points paid were not more than generally charged in your area
4. You use the cash method of accounting (most individuals do)
5. Points were not paid in place of separately stated fees (appraisal, title, attorney, property taxes)
6. Funds you provided at closing (plus seller-paid points) were at least as much as the points charged
7. You use the loan to buy or build your main home
8. Points were figured as a percentage of the loan principal
9. The amount is clearly shown on the settlement statement as points

Standard vs. itemized: You must itemize on Schedule A to deduct points. If you take the standard deduction ($14,600 single / $29,200 married filing jointly for 2025), you cannot deduct points.

Seller-paid points: If the seller pays points for your mortgage, the IRS treats you as having paid them. You deduct them — but you must reduce your cost basis by the seller-paid amount.

Closing Costs on a Refinance

Refinance closing costs follow different rules than a purchase.

Points on a refinance:

• Generally not fully deductible in the year paid
• Must be amortized over the life of the new loan
• Exception: Points on a refinance used to substantially improve your main home can be deducted in the year paid (if you meet the first 6 IRS tests)

Example: You pay $3,000 in points on a 30-year refinance. Deduct $3,000 ÷ 360 = $8.33/month, or $100/year.

Prepaid interest on a refinance: Deductible in the year paid if you itemize — same as a purchase.

Other refinance costs: Appraisal, title, and recording fees are not deductible. Add to basis if the refinance is part of an improvement.

Remaining points from old loan: If you refinance before the old loan ends, deduct any unamortized points from the previous loan in the year you pay off that loan.

Closing Costs on a Rental Property

Rental property closing costs follow yet another set of rules.

Not deductible upfront:

• Most closing costs are capitalized — added to the property's basis
• Basis is recovered through depreciation over 27.5 years (residential rental)

Deductible as rental expenses:

• Mortgage interest on the rental loan (Schedule E, not Schedule A)
• Property taxes (Schedule E)
• Points — amortized over the loan term (not fully deducted in year one)

Example: You buy a rental for $250,000 with $5,000 in closing costs added to basis. Total basis = $255,000. Land value $50,000 is excluded. Depreciable basis = $205,000 ÷ 27.5 = $7,455/year.

Not deductible on rentals: Owner's title insurance, appraisal, attorney fees — all added to basis.

Frequently Asked Questions

Are closing costs tax deductible?

Most are not. You can deduct mortgage points (if IRS tests are met), prepaid interest, and prepaid property taxes if you itemize.

Can I deduct mortgage points?

Yes, in the year paid if you meet all 9 IRS tests in Publication 530 and itemize. Otherwise, amortize over the loan term.

Are transfer taxes deductible?

No on Schedule A. Transfer and stamp taxes are added to your home's cost basis instead.

What closing costs can I deduct on my taxes?

Prepaid mortgage interest, prepaid property taxes, and points (if qualified) — all on Schedule A if you itemize.

Are closing costs deductible on a refinance?

Points must be amortized over the loan life unless used for substantial home improvement. Prepaid interest is deductible in the year paid.

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