I Bought Property in 2025: Are Closing Costs Deductible?

Are Closing Costs Tax Deductible? Here’s What Home Buyers Really Need to Know

If you’ve bought a home recently or you’re planning to, you’ve probably had this thought at some point:

“I just paid a lot at closing… can I write any of this off on my taxes?”

Short answer: some of it, yes. Most of it, no.
Let’s break it down in a way that actually makes sense.

First, a quick refresher on closing costs

Closing costs are the fees and expenses you pay to finalize the purchase of a home. They usually include things like lender fees, title charges, taxes, insurance, and prepaid items. Depending on the price of the home, they can add up quickly.

But when it comes to taxes, the IRS treats these costs very differently depending on what the fee is.

Closing costs that may be tax deductible

If you itemize deductions on your tax return (instead of taking the standard deduction), a few closing costs can reduce your taxable income.

1. Mortgage interest paid at closing

When you close, you typically prepay interest from the closing date until your first mortgage payment. That interest is deductible just like regular mortgage interest and is usually listed clearly on your Closing Disclosure.

2. Mortgage points (in some cases)

If you paid points to lower your interest rate, those points may be deductible. For many buyers purchasing a primary residence, points can often be deducted in the year you bought the home, as long as they meet IRS requirements and are clearly shown on your paperwork.

3. Property taxes paid at closing

If you reimbursed the seller for property taxes they prepaid, or if taxes were collected at closing for escrow, those amounts may be deductible. Keep in mind there are limits on how much state and local tax you can deduct each year.

Closing costs that are not tax deductible

Here’s where most buyers are surprised. The majority of closing costs are not deductible, including:

• Title insurance and title search fees

• Appraisals and inspections

• Attorney or settlement fees

• Recording fees

• Credit report fees

• Loan origination fees (that are not points)

• Homeowners insurance premiums

• HOA transfer or initiation fees

• Mortgage insurance (PMI, FHA, VA, etc.)

These costs don’t lower your taxable income in the year you buy.

One important silver lining most people miss

While many closing costs aren’t deductible now, some can be added to your home’s cost basis. Why does that matter?

Your cost basis helps determine how much capital gains tax you may owe when you sell. A higher basis can mean lower taxes later, especially for investment or second homes.

This is another reason it’s smart to keep your Closing Disclosure and settlement statements long term.

Two things that really matter

You must itemize deductions.
If you take the standard deduction, deductible closing costs won’t impact your tax bill.

Every situation is different.
Primary residences, second homes, and investment properties can be treated differently. Income, filing status, and local tax limits also come into play.

The bottom line

Most closing costs aren’t tax deductible, but a few key items can be:

• Mortgage interest paid at closing

• Qualifying mortgage points

• Property taxes paid at closing

And even when a cost isn’t deductible now, it may still help you later when you sell.

As always, a qualified tax professional is your best resource for applying these rules to your specific situation.

If you have questions about buying, selling, or investing in real estate and how those decisions connect to the bigger financial picture, we’re always happy to help point you in the right direction.

Leigh McPherson, REALTOR®

Associate Broker / Team Leader

REMAX of Orange Beach*

(251) 609-9994

[email protected]

gulfcoastleigh.com

*Each office is independently owned and operated.