Are Closing Costs Tax Deductible? What Actually Qualifies

The easiest way to work through your settlement statement is to separate what each charge paid for. Below, we’ll explain the federal tax treatment for buyers and sellers, then walk through an example. Rental properties have different rules, which we cover separately.

Where Your Closing Costs Go on Your Taxes

There are three possible tax benefits to look for.

1. A deduction lowers taxable income for the year you claim it.
2. A cost added to your home’s basis becomes part of its cost for tax purposes, which can reduce your gain later.
3. A selling expense reduces the sale proceeds used to calculate that gain.

Some charges do none of those things.

Type of cost	Usual treatment for a personal home
Qualifying mortgage interest, points, property taxes, and mortgage insurance	May qualify for an itemized deduction, subject to eligibility, limits, and timing rules.
Qualifying purchase costs, such as owner’s title insurance and deed recording	Added to the home’s basis, not deducted immediately.
Qualifying costs to sell, such as an agent’s commission	Subtracted from the selling price when calculating gain.
Homeowner’s insurance and lender-required appraisal fees	Generally neither deductible nor added to the home’s basis.
Money deposited in escrow for future taxes and insurance	The deposit itself isn’t a deduction. A later payment may qualify, depending on what it pays.

Which Closing Costs Can a Buyer Deduct?

You generally have to itemize to deduct these personal-home expenses. That means adding up eligible expenses on Schedule A instead of taking the standard deduction, a set amount based on your filing situation.

Mortgage Interest and Points

Prepaid mortgage interest at closing often covers the partial month before your regular payments begin. It may be deductible if the loan qualifies for the home mortgage interest deduction and falls within the applicable limits.

Points are prepaid interest too, but the timing can be different. Points paid to buy your main home may be fully deductible in the year paid if you meet all the IRS tests.

Those tests include how the points were calculated and paid, whether the charge is customary, and how it’s shown on the settlement statement. A lender’s service fee doesn’t become deductible interest simply because someone calls it a point.

Refinance points generally have to be spread over the loan’s term. Using some of the money to substantially improve your main home can change that treatment for part of the points.

Paying off a loan early or refinancing with the same lender can also affect when you deduct remaining points, so keep the old loan paperwork.

Your Share of Property Taxes

Your share of property taxes for the time you owned the home may be deductible. The closing statement usually divides the tax bill between buyer and seller; that’s the tax proration.

Property taxes share a deduction limit with your other deductible state and local taxes. This is often called the SALT cap. It isn’t an extra allowance just for property taxes. The 2026 limits depend on your filing status and income:

• Most filing statuses: the cap is $40,400. It starts shrinking above $505,000 of modified adjusted gross income, but cannot fall below $10,000.
• Married filing separately: the cap is $20,200. It starts shrinking above $252,500 of modified adjusted gross income, but cannot fall below $5,000.

Modified adjusted gross income is the tax-law income figure used for this limit, not simply your salary. Your preparer or tax software can calculate it and apply any reduction.

Mortgage Insurance in 2026

Qualifying mortgage insurance premiums can be deductible again starting in 2026; the federal deduction has been restored permanently. Mortgage insurance protects the lender, unlike homeowner’s insurance, which protects the property.

The IRS’s 2026 guidance applies to eligible borrowing to buy, build, or substantially improve a first or second home that secures the debt. The insurance contract must have been issued after December 31, 2006. Itemization and income limits still apply.

Qualifying PMI, FHA mortgage insurance, VA funding fees, and Rural Housing Service guarantee fees can be covered. But an upfront charge isn’t necessarily deductible all at once.

Prepaid private and FHA premiums generally must be allocated over time; VA and Rural Housing fees have different treatment. Give your preparer the loan and insurance documents rather than assuming the entire closing charge belongs on this year’s return.

Which Purchase Costs Add to Your Home’s Basis?

Start with the purchase price, then add qualifying costs of acquiring the property. These can include:

• Owner’s title insurance.
• Title-search and deed-preparation fees.
• Deed recording.
• Surveys.
• Transfer taxes.

Keep those receipts even if they don’t help on this year’s return. You’ll need them when you calculate a future gain.

Doug spent seven years in residential appraisal, beginning in 2003, and appraisal fees are a useful example of why the purpose of a charge matters.

An appraisal required by your lender is a cost of getting the loan, not of acquiring the house itself. For a personal home, it generally isn’t deductible or added to basis. IRS Publication 551 makes that distinction.

Don’t automatically add an inspection or other loan-related charge to basis either; check what the service was for.

Our California closing-cost guide explains the charges separately from their tax treatment.

How Seller Closing Costs Reduce Your Gain

When you sell, qualifying selling costs generally reduce the proceeds used to calculate your gain. You don’t claim them as personal itemized deductions.

Qualifying costs incurred to complete the sale can include:

• Your agent’s commission.
• Sale-related legal and escrow fees.
• Title insurance.
• Transfer or recording charges.

Your adjusted basis reflects the home’s tax cost after changes such as qualifying improvements and any required depreciation adjustments.

Keep property-tax prorations and mortgage interest separate; those may qualify as deductions under their own rules.

Repairs, HOA charges, home warranties, and buyer credits also need to be classified by what they actually paid for. The seller’s column on a closing statement isn’t a list of automatic tax write-offs.

For the transaction costs themselves, see our breakdown of what it costs to sell in California.

Where the Home-Sale Exclusion Fits

If you qualify, Section 121 can exclude up to $250,000 of gain, or up to $500,000 on a qualifying joint return. You still calculate the gain first.

Marriage alone doesn’t establish eligibility for the larger exclusion, and ownership, use, and prior-sale rules matter. Rental use and depreciation can also limit what you can exclude.

What Changes for an Inherited or Rental Property?

Inherited Homes: Confirm the Starting Value

For an inherited home, don’t start with what your parent or other relative originally paid. Basis generally starts with the property’s fair market value at their death, or an applicable alternate valuation, subject to exceptions and later adjustments.

Bring the estate valuation and improvement records to your preparer along with the closing statement. Our inherited-home sale guide explains the sale process and why that starting value matters.

Rentals: Separate the Building, Land, and Loan Costs

Buying a rental doesn’t make all your closing costs immediately deductible. Qualifying costs of buying the property become part of its basis, which must be divided between the land and building.

You generally recover the building’s share through depreciation: deductions spread over years once it’s ready and available to rent. Land isn’t depreciated.

Costs of getting the loan, including rental-loan points, follow separate rules. They generally are deducted over the loan term rather than added to the building’s basis.

Rental interest, taxes, and insurance may be operating expenses, with allocation needed if you also use the property personally. IRS Publication 527 explains these distinctions. Keep the loan paperwork, rental start date, and depreciation schedules with your purchase records.

When you sell, depreciation reduces adjusted basis and can make part of the gain taxable even if the property was once your main home. The amount and tax rate depend on your property’s history; some gain may still qualify for the home-sale exclusion if you meet its requirements.

Our rental-property gain calculation guide covers the numbers, while our rental-sale guide covers preparing for the transaction.

The Records to Keep for Your Tax Return

If a closing charge isn’t clear, ask escrow what it covered. Your tax preparer can then determine whether it belongs on this year’s return, in your basis records, or in the sale calculation. That’s more useful than handing over one total labeled “closing costs.”

Closing Costs and Taxes: Common Questions

Are closing costs tax deductible?

Some are. Qualifying interest, property taxes, points, and mortgage insurance may be itemized deductions.

Other costs affect your home’s basis or reduce sale proceeds when calculating gain. Some personal-home charges, including homeowner’s insurance and lender-required appraisals, generally do neither.

Which closing costs can a buyer deduct in the year of purchase?

Qualifying prepaid mortgage interest and your deductible property-tax share may qualify. Certain purchase points and, beginning in 2026, qualifying mortgage insurance may also be deductible. You must itemize, meet the eligibility requirements, and apply the timing and income limits.

Are seller closing costs deductible?

Qualifying selling expenses generally reduce the amount used to calculate your gain rather than become itemized deductions. Separately, qualifying mortgage interest and your share of real property taxes may be deductible. Your mortgage payoff isn’t a selling-expense deduction.

Is the mortgage insurance premium deductible in 2026?

It can be. The federal deduction returns in 2026 for qualifying premiums, subject to itemization, income, loan, home, and contract-date rules. Upfront premiums may need to be spread over time, so don’t assume the full payment is deductible at closing.

How much is the SALT deduction cap in 2026?

The general cap is $40,400, or $20,200 for married filing separately.

Higher-income taxpayers have a reduced cap, with a minimum of $10,000 or $5,000 respectively. It covers your combined deductible state and local taxes, not just the property taxes paid at closing.

If You’re Thinking About Selling Now

Your CPA handles the tax calculation. If you’d also like to compare a direct sale with listing your home, we can provide a cash offer so you have an actual number to consider.

We buy as-is homes across Orange, Los Angeles, San Diego, San Bernardino, and Riverside counties and typically close in 3 to 5 weeks. The actual date depends on title, payoff, occupancy, and escrow requirements.

Call or text (951) 331-3844 or request a cash offer.

Doug Van Soest worked in residential appraisal for seven years, beginning in 2003. He co-founded SoCal Home Buyers with his wife Andrea Van Soest, CA DRE #01505854. Together they have closed over 400 transactions across Southern California.