Can You Deduct Closing Costs on Taxes: The Three That Qualify

You can deduct closing costs on your taxes only in three narrow categories: property taxes prorated to you at closing, prepaid mortgage interest (including qualifying discount points), and, starting with the 2026 tax year, mortgage insurance premiums. Every other fee on your Closing Disclosure either gets added to your home’s cost basis, where it lowers your taxable gain when you eventually sell, or provides no tax benefit at all. And the three deductible items only help if you itemize on Schedule A instead of taking the standard deduction.

The Three Deductible Closing Costs

All three deductions live on Schedule A, so they only reduce your tax bill if your total itemized deductions beat the standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers, and $24,150 for heads of household.¹ A December closing with a big tax proration and several thousand dollars in prepaid interest can sometimes push you over that line in the purchase year, even if you’d normally take the standard deduction.

Property Taxes Prorated at Closing

Buyers and sellers split the property tax bill based on how many days each side owned the home during the tax period. You can deduct only the portion covering days after you took title. The prorated figure sits on your Closing Disclosure, and the math is the annual tax bill divided by 365, times the days you owned the property that year.²

That deduction is subject to the state and local tax (SALT) cap. For 2026, the cap is $40,400 for most filers, or $20,200 if you’re married filing separately.³ That single cap covers your state and local property, income, and sales taxes combined. If you’re in a high-tax state and already hit the ceiling through income tax withholding, the property tax proration from closing adds nothing more.

Prepaid Mortgage Interest

When you close partway through a month, the lender charges interest from the closing date through the end of that month. This prepaid (or per diem) interest is fully deductible in the year you pay it, within the overall mortgage interest limits. For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt, or $375,000 if married filing separately.⁴

Your lender reports prepaid interest along with all other mortgage interest on Form 1098.⁵ If you closed late in December, that first 1098 might show only a few days of interest, but every dollar of it counts.

Mortgage Points

Points are upfront charges you pay the lender to buy down your interest rate. Each point is 1% of the loan amount, so on a $400,000 mortgage, one point costs $4,000. Points paid on a purchase loan for your primary residence can be deducted in full in the year you pay them, but only if all of these are true:⁶

The loan is for buying, building, or improving the home you live in most of the time, and that home secures the mortgage.
Paying points is an established practice in your area, and the amount charged is in line with what’s typical locally.
You paid the points from your own funds, not with money borrowed from the lender or broker. Seller-paid points on your behalf do count, but you have to reduce your home’s basis by the same amount.
The points are calculated as a percentage of the loan principal and shown clearly on your settlement statement.

If any of those conditions fails, you have to spread the deduction over the life of the loan. On a 30-year mortgage, that means 1/30th of the total points each year.⁷ Your Form 1098 shows both deductible and amortizable points.

Mortgage Insurance Premiums Starting in 2026

The deduction for private mortgage insurance and government mortgage insurance premiums spent years expiring and getting temporarily renewed. Starting with the 2026 tax year, the One Big Beautiful Bill Act made it permanent. If you put less than 20% down and your lender requires mortgage insurance, those premiums are deductible as mortgage interest on Schedule A.⁴

The deduction phases out at higher incomes. It starts shrinking once your adjusted gross income passes $100,000 ($50,000 if married filing separately), losing 10% for every $1,000 above that threshold, and disappears entirely at $110,000 AGI ($55,000 filing separately).

Closing Costs That Add to Your Cost Basis

Many closing costs can’t be deducted now but still deliver a benefit later. They get added to your home’s cost basis, the number the IRS uses to figure your taxable profit when you sell. Higher basis, smaller gain. Buy for $350,000, pay $6,000 in capitalizable closing costs, sell for $500,000, and your gain is calculated against a $356,000 basis rather than $350,000.

The IRS treats these closing costs as additions to basis:⁸

Abstract fees, owner’s title insurance premiums, and legal fees for the title search and deed preparation.
Recording fees charged by the local government to record the deed and mortgage.
State and local transfer or stamp taxes, when paid by the buyer.
Property boundary surveys required for the transaction.
Fees for installing utility service connections to the property.
Seller obligations you agreed to cover, such as the seller’s back taxes, their share of recording fees, or repair costs baked into the deal.

The rule of thumb: if you’d pay the fee even buying with cash and no mortgage involved, it’s a cost of acquiring the property and belongs in basis.²

Hold onto your Closing Disclosure. It’s the only document that itemizes every fee you paid, and the IRS expects you to keep property records until the statute of limitations expires for the year you sell.⁹ Since homes are often held for decades, that means keeping the paperwork for as long as you own the property, plus at least three years after selling. Lose it, and you may owe more capital gains tax than necessary because you can’t prove your basis adjustments. A digital copy stored in two places is the minimum.

Closing Costs With No Tax Benefit

Some common closing costs are treated as personal expenses. You can’t deduct them and you can’t add them to basis:²

The lender’s appraisal fee.
The credit report fee.
Lender’s title insurance, which protects the lender rather than you. The owner’s title policy, by contrast, does go into basis.
Home inspection fees.
Loan assumption fees and mortgage application charges.
Homeowners association initiation fees, deposits, or transfer charges.
Prepaid homeowner’s insurance, including fire and hazard premiums collected at closing.

These are either costs of getting the mortgage or ordinary personal expenses of homeownership. They come straight out of your pocket with no tax offset.

Rentals and Refinances Follow Different Rules

If you bought the property to rent out, the closing costs that sit dormant for a homeowner become useful sooner. Fees that get capitalized into basis (title insurance, recording fees, transfer taxes, legal fees, surveys) feed into annual depreciation deductions rather than waiting for a sale.¹⁰ Property taxes on rentals are deducted as a business expense, so the SALT cap doesn’t apply.³

Refinancing your primary residence is stricter than a purchase. Most refinance settlement fees give you no deduction at all. Points paid to refinance can’t be deducted in full in the year paid; you have to spread them over the entire loan term, so 1/15th per year on a 15-year loan.⁶ One useful wrinkle: if you had unamortized points from an earlier refinance and refinance again, you can deduct the remaining balance of those old points in the year the old loan is paid off. Application fees, appraisal charges, and title searches on a refinance of your primary home neither reduce current tax nor add to basis.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Publication 530 – Tax Information for Homeowners
3
Office of the Law Revision Counsel. 26 USC 164 – Taxes
4
Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
5
Internal Revenue Service. About Form 1098, Mortgage Interest Statement
6
Internal Revenue Service. Topic No. 504 – Home Mortgage Points
7
Office of the Law Revision Counsel. 26 USC 461 – General Rule for Taxable Year of Deduction
8
Internal Revenue Service. Publication 551 – Basis of Assets
9
Internal Revenue Service. How Long Should I Keep Records
10
Internal Revenue Service. Rental Expenses