The arrival of spring marks three things: blooming flowers, warmer weather, and tax time. We understand that filing your taxes can be a bit overwhelming, especially if you’re a new homeowner. From gathering your income, documents, and other miscellaneous information, you may be asking yourself: What expenses can I deduct? Are closing costs tax deductible? Here is everything you need to know about maximizing your return this tax season.

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Are Closing Costs Tax Deductible?

In simplest terms, it depends. If an expense is tax deductible it means that it can be subtracted from the adjusted gross income when calculating the amount of taxes owed. Taxpayers can either choose to itemize their taxes by calculating individual deductions or they can claim the standard amount and not itemize. Not many closing costs are tax deductible apart from mortgage points and any property taxes that are paid in advance.

Non-Deductible Closing Costs

These expenses are non-deductible and should be added to the cost of the property and noted on Form 1040.

  • Abstract Fees
  • Pre-move-in utilities charges
  • Fire and flood insurance or certificates
  • Pre-closing rent (if you moved in early)
  • Mortgage refinancing
  • Title fees
  • Real estate commissions
  • Costs of appraisal
  • Home inspections
  • Costs of reporting credit
  • Transfer taxes
  • Attorney fees

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Working with an experienced tax professional will ensure that you are maximizing your tax deductions. 


Eligible Tax Deductions

There are still many tax benefits to owning a home, here is a list of possible tax deductions that may reduce your tax bill:

Mortgage Interest

If you have a mortgage on your home, you can lower your taxable income by taking advantage of this deduction. Single filers and married couples filing jointly can deduct the interest on up to $750,000. If married and filing separately, the deduction limit is $375,000 each.

Home Equity Loan Interest

Similar to regular mortgage interest, taxpayers can deduct the interest paid on home equity loans and home equity lines of credit if they used the funds to pay for home improvements.

Mortgage Points

Homeowners who purchased mortgage discount points to reduce their mortgage interest rate can deduct the cost of the points when filing. Loan origination points are non-deductible because these fees do not affect the overall interest rate of the loan.

Property Taxes

State and local income, sales, and property taxes are eligible to a combined total deduction of $10,000, $5000 if married filing separately.

Private Mortgage Insurance

If your down payment was less than 20% of the home’s purchase price, you are most likely paying private mortgage insurance. Homeowners can choose to factor in their PMI payments on their itemized tax return.


Financial Benefits of Homeownership

Owning a home comes with a variety of benefits, especially during tax season. While it can be overwhelming to calculate the various deductions, it is a good idea to look at what is available to you so that you can maximize your return. If you need assistance with tackling your taxes this season, we recommend speaking with an experienced tax professional to ensure that you’re receiving all of the deductions available to you.


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