What Closing Costs are Tax Deductible?

Written by Eric Beepat

On May 23, 2020

What Closing Costs are Tax Deductible?

Since I am also a Realtor, a question that I get from new home buyers is what closing costs are tax deductible. I did a blog post recently on my real estate blog HERE, answering what are closing costs in NJ.  So, decided to write about it on the tax -side over here.  I service the Hudson County area in New Jersey where properties can be very expensive.

Buying your first home is a big deal and there are some tax benefits. Getting tax benefits is only one of many reasons to OWN.  So, are closing costs tax deductible? Unfortunately, the answer isn’t as clear cut.

Lets start by noting that you are only going to benefit from if it makes sense that you itemize your deductions.  With the passage of the Tax Cuts and Jobs Act, the standard deduction amounts were significantly increased.  You can find a quick summary that I did on the TCJA HERE.

When you close on a home, you get a closing disclosure provides the final details about the mortgage loan that you chose. It includes the loan terms, monthly payments, and how much you will pay in fees and closing costs.

The following are tax deductible closing costs items:

  • Real estate taxes charged to you when you closed,
  • Mortgage interest paid when you settled, and
  • Some loan origination fees (discount points)
  • Sales taxes paid at closing

However, like I mentioned earlier you’ll only want to itemize them if all your deductions total more than the standard deduction. Each house purchase is unique. Always reach out to your lender to understand these fees.

Costs of closing on a home that aren’t tax deductible include:

  • Home Appraisal fee
  • Home inspection fee
  • Attorney fees
  • Title fees
  • Transfer taxes
  • Notary Fees
  • Home Insurance premiums
  • Utility Costs

Every homeowner’s tax benefits will be a little different as no persons situation is entirely the same.  At the end of the day, when you OWN,  you’re building equity.  You will more than likely make money when you sell.  In my opinion its WAY better than paying rent.

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