Can I deduct closing costs?

Updated April 24, 2026 by Chris Rubino, EA

Closing costs can be pesky things, particularly if you are new to buying or selling real estate. You already agreed to a sales price and to a down payment – and suddenly you’re faced with a multi-page document filled with line items you weren’t expecting.

For this reason, one of the most common questions we get is: Can I deduct any of these line-item expenses from my taxes? 

The answer, like most things in the tax world, is: It depends. While not everything is deductible in the year you buy the home, many costs provide tax benefits down the road.

 

Categories of Costs

Buying a home is not as simple as buying a sack of potatoes at your local supermarket. A real estate transaction generally involves four categories of costs:
 

1. Financing costs: Fees associated with securing a mortgage (or the seller paying one off).
2. Legal and transfer fees: You are paying the legal costs of the transfer of title.
3. Ownership carryover:  Costs that come with the property title, such as prorated property taxes.
4. Additional fees: On top of those first three categories, there are typically many people involved in the process of buying or selling real estate, including realtors, realty offices, the escrow office and officer, brokers, etc., who all need to get paid. Many of these fees also create separate closing cost line items on the Closing Disclosure document or HUD-1 Settlement Statement.

So, what is the impact of these various costs on your tax return? Let’s look at them one at a time.

 

Immediately Deductible Expenses
 

• Mortgage Interest: Any "prepaid" interest covered at closing for the period between your closing date and your first monthly payment is deductible.
• Mortgage Points: If you paid "points" (loan discount fees) to lower your interest rate on a primary residence, these are generally deductible in the year you paid them, provided they meet IRS requirements.
• Real Estate Taxes: Prorated property taxes paid at closing are deductible. However, under current tax law (the One Big Beautiful Bill Act), your total deduction for state and local taxes (SALT), which includes real estate taxes, is limited to $40,000 ($20,000 if married filing separately).
• Mortgage Insurance Premiums (PMI): While this deduction has historically expired and been "extended" by Congress multiple times, it has expired for the 2025 tax year and earlier; however, the One Big Beautiful Bill Act permanently restored this deduction starting in the 2026 tax year, for homeowners with an adjusted gross income (AGI) below $100,000 ($50,000 if married filing separately). 

It is important to keep in mind that, to deduct these costs, you must itemize your deductions on IRS Form 1040, Schedule A. If you take the standard deduction, you cannot claim these deductions.

 

Costs That Increase Your "Basis"

Basis is what you paid for the home (its cost), plus certain items that are considered the cost of home ownership. Examples are:
 

• Title insurance
• Transfer taxes
• Survey fees
• Any of the seller’s expenses that you may have agreed to pay, such as back taxes or repairs

In a nutshell: If the fee is a legal requirement to obtain the title—and you would have paid it even if you paid cash—it likely adds to your basis.

 

Non-Deductible Costs

Examples of non-deductible costs are:
 

• Credit Report fees
• Loan-specific fees: Appraisal fees and loan application fees.
• Inspection fees: Pest inspections or general home inspections.

The general rule is that if it is not a cost to obtain title or a deductible cost, it is non-deductible.

 

Pro-Tip for Sellers

If you are the seller, your closing costs (like real estate commissions, advertising fees, and legal fees) are generally deducted from the "sales price." This reduces your capital gain, which is vital if your home has appreciated significantly beyond the $250,000/$500,000 exclusion limits.

 

Summary Table: Tax Treatment of Common Fees

The Bottom Line: Keep your Closing Disclosure in a safe place (or a digital cloud) for as long as you own the home. You will need it not just for this year’s tax return, but for the day you eventually sell.