TL;DR: Is closing costs a tax deductible in the US?
Here's how it works:
Most closing costs aren’t tax-deductible, but mortgage points and real estate taxes may be if you itemize deductions. Report them on Schedule A using your Closing Disclosure and Form 1098. Mistakes include assuming all fees are deductible or not distinguishing between deductible costs and those added to your home’s basis.
Understanding how to claim closing costs as a tax deductible in the US can lead to significant tax savings. We strongly suggest you consult with a tax professional to ensure you're maximizing your eligible deductions and complying with current tax laws in the US.
Here is a summary table:
Aspect | Details |
|---|---|
| Who can claim closing costs in the US? | Buyers who paid mortgage points or real estate taxes paid at closing |
| Where to report on tax return | Schedule A (Form 1040) |
| Requirements | Form 1098 from your lender, closing disclosure, and settlement statement. For paid real estate taxes, payment records are required. |
Who can claim closing costs as a tax deduction?
Generally, most closing costs associated with purchasing a home are not tax-deductible. However, there are exceptions. If you paid mortgage points (also known as discount points) to lower your interest rate, these may be deductible, provided certain conditions are met, such as the loan being secured by your primary residence and the points being a customary charge in your area. Additionally, any real estate taxes paid at closing can be deductible if you itemize deductions. It's important to note that other fees, like title insurance or appraisal fees, are not deductible but can be added to your home's basis, potentially reducing capital gains tax when you sell.
Where do I report closing costs on my tax return?
If you're eligible to deduct mortgage points or real estate taxes paid at closing, you'll report these on Schedule A (Form 1040) when itemizing deductions. Mortgage points are included under "Home mortgage interest and points reported to you on Form 1098," while real estate taxes are listed under "State and local real estate taxes." Ensure you have the necessary documentation, such as Form 1098 from your lender, which details the mortgage interest and points paid.
What documentation do I need to claim closing costs as a tax deductible?
To substantiate your deductions, retain the Closing Disclosure or settlement statement provided at closing, which outlines all fees paid. Form 1098 from your lender will detail mortgage interest and points paid during the year. For real estate taxes, keep records of payments made, especially if they were paid directly to the taxing authority or through an escrow account. Accurate documentation is crucial to support your deductions in case of an IRS inquiry.
What are common mistakes or misconceptions about claiming closing costs as a tax deductible?
A prevalent misconception is that all closing costs are tax-deductible, which isn't the case. Only specific costs, like mortgage points and certain real estate taxes, may be deductible. Another common error is neglecting to itemize deductions; if you take the standard deduction, you cannot separately deduct these costs. Additionally, some homeowners mistakenly believe that fees like title insurance or appraisal costs are deductible, whereas they are not but can be added to the home's basis. It's essential to distinguish between deductible expenses and those that adjust your home's cost basis for future tax considerations.
Tax Deductibles 101
What defines a tax deductible?
A tax-deductible expense is one that reduces your taxable income, lowering the tax you owe. Common examples include business costs, mortgage interest, and charitable donations. You can claim a standard deduction or itemise if your expenses are higher.
Common tax-deductible expenses
Personal | Business |
|---|---|
| Mortgage interest payments | Office rent and utilities |
| Charitable donations | Employee salaries and benefits |
| Medical and dental expenses exceeding a certain percentage of income | Business travel and meals |
| State and local taxes (with limitations) | Advertising and marketing costs |
| Student loan interest | Professional services (e.g., legal and accounting fees) |
Tax Deduction vs. Tax Credit
It's important to distinguish between a tax deduction and a tax credit:
Tax Deduction | Tax Credit | |
|---|---|---|
| Difference | Reduces your taxable income. The actual tax savings depend on your marginal tax rate. | Directly reduces your tax liability pound-for-pound. |
| Example | A £1,000 deduction in a 20% tax bracket saves you £200. | A £1,000 tax credit lowers your tax bill by £1,000, regardless of your tax bracket. |
How to manage your tax deductibles like a pro
1. Keep detailed records
It’s way easier to stay on top of your taxes if you’re not hunting for crumpled receipts at the last minute. Start saving invoices, receipts, and notes on business expenses throughout the year, not just when April rolls around.
If it helps, use an app to scan documents as you go to keep things tidy and searchable. The more organized you are, the more likely you’ll catch deductions you’d otherwise miss. And come tax time? You’ll thank yourself.
You may like this: What deductions can I claim without receipts?
2. Separate business and personal expenses
Use different bank accounts or cards to clearly track deductible business costs. Mixing your personal and business spending in one account is a recipe for confusion. So, get a separate bank account or card for your business—it makes tracking expenses so much cleaner.
This simple step not only saves time but also protects you if the IRS ever asks questions. Plus, it gives you a clearer picture of how your business is actually doing, which helps with smarter money decisions all year long.
You may like this: Types of Tax Credits for Small Businesses 2025
3. Track mileage and home office use
Mileage and home office deductions are gold but only if you’ve got records. For mileage, jot down your trips, where you went, and why it was business-related. Better yet, let an app do it for you in the background.
If you work from home, note which part of your space is used for work only, and keep a handle on related expenses like utilities or internet. These are details that often slip through the cracks... but they add up fast.
You may like this: What Is Self Employment Tax: Rates, Requirements, Deductions
4. Review deduction thresholds
Not every expense is deductible right away since some need to pass income-based thresholds first. For example, medical expenses only count if they go over 7.5% of your income.
Knowing these limits ahead of time helps you make smart moves, like bunching deductions in one year to cross the threshold. It’s not just about tracking—it’s about timing and strategy.
You may like this: Tax Loopholes for Small Businesses 2025
5. Consult a tax professional annually
Tax laws change often; a pro can help you maximize deductions and avoid errors. So, even if you feel confident filing on your own, talking to a tax pro once a year can make a big difference. They’re up to date on the latest rules, and they might spot deductions or credits you didn’t even know existed.
If your life or business changed in any way—new job, side hustle, big purchase—they’ll help you navigate it smartly. Think of them not just as a form-filler, but as someone helping you keep more of your hard-earned money.
You may like this: How to Beat Tax Extension Deadlines with Automation
Claiming closing costs as a tax deductible in the US? Here's how Receiptor AI can help you:
Keeping track of what’s deductible is one thing. Having proof ready when it counts? That’s where most people slip.
Receiptor AI helps you get organized — without the stress or spreadsheets. Here’s how:
1. Automatically collects your receipts from email and WhatsApp
No more digging through inboxes. Receiptor scans your connected accounts for receipts, invoices, and bills — even from months (or years) ago.
2. Categorizes expenses intelligently
Receiptor uses AI to understand your transactions' context. Whether it’s a premium for health insurance, a business lunch, or a home office chair — it tags everything correctly for your accountant (or the IRS).
3. Stores all deductible documents in one place
Forget the shoebox or random folders. All your documents live in one secure dashboard, searchable by merchant, category, or date.
4. Exports tax-ready reports
When tax season hits, you’re not starting from scratch. Export everything as a CSV, PDF, or ZIP — ready for TurboTax, your CPA, or your own filing.
5. Saves you hours (and money)
By catching missing deductions and automating your records, Receiptor helps you lower your tax bill and reclaim the time you’d spend chasing down receipts.
Quick FAQs
Can I deduct my closing costs from my taxes?
Only certain costs like mortgage points may be deductible.
Can you claim your closing costs deductible?
Partially, such as points or mortgage interest.
Do you get a tax refund for closing costs?
Yes, for some parts, like prepaid interest.
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