Are closing costs tax-deductible? Here's what you can deduct

Closing costs on a home often range from $10,000 to $20,000. Many new homebuyers, understandably, wonder whether they can deduct this big expense to get a tax break at the end of the year.

The answer is yes, at least some of a new home's closing costs can be deducted on this year's tax return. Not all closing expenses qualify for a tax deduction.

Which costs can and can't be deducted from taxable income? Let's take a closer look.

What are closing costs?

Closing costs are the fees and expenses you pay when finalizing a mortgage loan. You'll pay these costs at closing alongside your down payment when signing your final loan documents.

Closing costs typically range between 2% and 5% of the loan amount for a home purchase. Refinance loans run higher, about 3% to 6% of the loan amount.

For a $400,000 home purchase, expect to pay anywhere from $8,000 to $20,000 in closing costs.

What closing costs pay

Closing costs cover several essential services:

• Origination and underwriting fees charged by the lender
• Professional home inspection and appraisal costs
• Title search and title insurance fees
• Mortgage or discount points to lower your interest rate
• Prepaid property taxes and insurance

Buyers typically are responsible for paying most closing expenses, but they can negotiate to get help from the seller. Buyers can also cut down on costs with strategies like these.

Some of these closing costs can be deducted from income taxes. For example, if you pay discount points to lower your mortgage rate, the cost of the points could be deducted.

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What are tax deductions?

Before discussing which closing costs can be deducted, it's important to decide whether or not you should deduct expenses to begin with.

Tax deductions reduce your taxable income dollar-for-dollar, lowering your overall tax bill. The IRS allows specific expenses to be subtracted from your annual income, creating meaningful savings opportunities for homeowners.

But deducting expenses complicates tax filing. To deduct home buying expenses, for example, you'd need to itemize deductions. That means keeping records of all deductible expenses and totaling them up on a specific tax form (Schedule A, 1040).

Most taxpayers take the simpler path of claiming the IRS's standard deduction. For the 2025 tax year, the standard deduction is:

• $15,750 for single filers and married individuals filing separately
• $31,500 for married couples filing jointly

Itemizing deductions makes financial sense only when your combined deductions exceed these standard amounts.

Are mortgage closing costs tax-deductible?

For recent homebuyers who itemize tax deductions, three main closing costs deliver immediate tax benefits when you buy a home:

• Mortgage interest paid at closing qualifies for full deduction if your loan stays within IRS limits: $750,000 for homes purchased after Dec. 16, 2017, or $1 million for earlier purchases.
• Mortgage points (including loan origination fees) can also be deducted when they meet specific IRS conditions. These points must be for your primary residence purchase, reasonably priced for your area, and clearly documented on your closing disclosure. You can deduct points either fully in the year paid or spread across your loan term.
• Property taxes prepaid at closing round out the deductible expenses, subject to the $10,000 SALT tax limit.

Most other closing costs don't qualify for tax deductions, including:

• Home inspection and appraisal fees
• Title insurance and search fees
• Recording fees and attorney costs

These non-deductible expenses still provide value by adding to your home's cost basis, potentially reducing capital gains taxes when you sell. 

When are closing costs tax-deductible?

Timing determines when you can claim tax benefits from closing costs. The IRS allows homeowners to deduct eligible expenses at different intervals, depending on the specific cost.

During the year the sale closed

Certain closing costs qualify for immediate tax deductions in the year you purchased your home. Mortgage points (including origination fees) can be fully deducted if they meet these conditions:

• The mortgage must be for buying or building your primary residence
• Points must be reasonably priced for your area
• You must have proof that you paid the points
• The amount appears on your closing disclosure

Points paid on a home improvement cash-out refinance may also be deductible in the year paid if you used all funds for home renovations. Property taxes paid at closing are immediately deductible, subject to the $10,000 annual cap.

Across the mortgage term

You can spread the deduction throughout your loan term if you don't qualify to deduct points in the year paid, or if itemizing doesn't make sense that year. With a 30-year mortgage and $3,000 in points, you'd deduct $100 annually for 30 years.

Points paid on home refinancing must typically be deducted over the loan's life rather than all at once.

Which closing costs are not tax-deductible?

Most expenses you pay at closing don't qualify for immediate tax deductions.

The following closing costs cannot be deducted on your tax return:

• Lender's title insurance
• Homeowners insurance premiums
• Homeowners association (HOA) fees
• Utility costs (gas, water, electric)
• Home appraisal and inspection fees
• Notary and attorney fees
• Credit check and recording fees
• Document preparation fees
• Mortgage insurance premiums (including FHA, VA, and USDA fees)

These non-deductible expenses aren't entirely without tax benefits. They can reduce capital gains taxes when you sell your home by adding to your cost basis, the total amount you've invested in your property.

Closing cost tax deduction FAQs

How much of my property taxes can I deduct on my return?

The Tax Cuts and Jobs Act of 2017 capped the state and local tax (SALT) deduction at $10,000 annually ($5,000 if married filing separately). This limitation applies to your combined state income taxes and property taxes. If you paid a portion of the seller's property taxes at closing, you can count this amount toward your $10,000 limit.

What home-buying expenses are tax-deductible?

Beyond mortgage interest and property taxes, few closing costs qualify for immediate tax deductions. Mortgage points (including origination fees) may be deductible if they meet IRS criteria. 

How much of my mortgage interest is tax-deductible?

Your purchase date determines your mortgage interest deduction limit. For homes bought after Dec. 16, 2017, you can deduct interest on loans up to $750,000 (or $375,000 if married filing separately). For earlier purchases, the limit is $1 million ($500,000 if filing separately).

Conclusion

Closing cost tax deductions can reduce your tax bill, though only specific expenses qualify for immediate benefits. Mortgage interest, property taxes, and mortgage points deliver the most value when you itemize deductions above the standard deduction threshold.

Tax rules change regularly, so consult a tax professional to maximize available deductions. Understanding these deductions helps you reduce your tax burden while building equity in your home.

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