Are closing costs tax-deductible?

When you buy a home, the amount you have to pay for closing costs can add up to 3% to 6% of the total loan amount. Understandably, buyers often wonder if the amount they paid in closing costs can help them get some relief at tax time. Can you deduct closings costs on a home from your federal taxes?

In most cases, the answer is no. The only mortgage closing costs you can claim on your tax return for the tax year when you buy a home are any points you pay to reduce your interest rate and any property taxes you paid up front.

The U.S. tax code provides homeowners with two big tax breaks. You can write off the interest you pay on your mortgage loans each year and the property taxes you pay to local governments. The bad news is that you can’t deduct most of the fees your lenders charge when closing on your mortgage loans.

What closing costs are tax-deductible?

Unfortunately, not many closing costs are tax-deductible. The closings costs that you can deduct from your taxes are any mortgage points you buy to reduce your interest rate and any property taxes you pay in advance.

Mortgage points

Mortgage points are tax deductible. Home buyers purchase these points to lower the interest rate on their mortgage. Each point costs 1% of the total loan amount. For instance, one point on a mortgage loan of $200,000 would cost $2,000. The amount that your interest rate is reduced varies depending on the lender but typically ranges from 0.125% to 0.25%.

While points increase your up-front costs, they can help you reduce your monthly payment and the amount of total interest you pay. Points can also help at tax time. The IRS allows you to deduct the full amount of your points in the year you pay for them. To claim this deduction, you must use your mortgage to build or buy your primary residence. You’re not allowed to borrow the funds used to pay for points and the amount you paid must be listed and itemized on your loan’s Closing Disclosure or settlement statement.

Property taxes

Property taxes are always deductible. When you take out a mortgage, you’ll usually have to pay some property taxes up front before they’re due to create an escrow account.

In an escrow arrangement, property taxes and homeowners insurance are part of your monthly payment. When your insurance and tax bills are due, your lender will dip into these funds and pay them on your behalf. Once tax time rolls around, you can deduct any property taxes you paid in advance.

Which closing costs are not tax-deductible?

Typically, the only closing costs that are tax-deductible are payments toward mortgage interest, buying points, or property taxes. Other closing costs are not, such as:

• Abstract fees
• Legal fees (including fees for the title search and preparation of the sales contract and deed)
• Recording fees
• Owner’s title insurance
• Credit check fees

There is one tax benefit to these costs, though. You can add these closing fees to the cost basis of your home when you sell it. This lowers the amount of profit that you make, but it can help reduce any capital gains tax you might have to pay on your home.

When you sell a home, you won't have to pay capital gains taxes on the first $250,000 of the profit on your sale if you are single or $500,000 if you’re married.

You can offset the taxes on your profit by adding your closing costs and the costs of any home improvements you’ve made to your cost basis.

FAQ about closing costs and taxes

Here are some additional questions and answers regarding closing costs on your home and tax deductions.

Are private mortgage insurance premiums tax-deductible?

Depending on the loan you take out, you might have to pay for private mortgage insurance (PMI) or mortgage insurance premiums (MIP). For the 2024 and 2025 tax years, mortgage insurance premiums could not be deducted. However, starting with the 2026 tax year, homeowners will once again be able to deduct mortgage insurance premiums. The deduction is available to taxpayers with an adjusted gross income (AGI) of up to $110,000.

How much property tax can I deduct?

For the 2025 – 2029 tax years, the property tax deduction is capped at $40,000, but will revert to $10,000 in 2030.

How much mortgage interest can I deduct? 

You can deduct a total of $1 million in interest if the home was bought before December 16, 2017, or $750,000 in interest if you bought your home after December 16, 2017.

Where do I find my closing cost information?

Your Closing Disclosure will list any tax-deductible closing costs.

The bottom line: Some closing costs are tax-deductible

Most closing costs are not tax deductible, but you can deduct any mortgage points you buy and any property taxes you pay in advance. Closing costs are a considerable up-front expense that come with buying a home, and property taxes are an ongoing cost.

Understanding which closing costs are tax-deductible can be helpful when navigating the financial aspects of the home buying process. Start your mortgage application today with Rocket Mortgage®.