Question 1

What closing costs are tax-deductible?

Accepted Answer

Only 3 closing costs are tax-deductible: (1) Mortgage interest (including prepaid interest), (2) Property taxes paid at closing, (3) Discount points paid to lower your rate. All other closing costs (appraisal, title insurance, attorney fees, inspection, origination fees) are NOT deductible.

Question 2

Are discount points 100% deductible?

Accepted Answer

YES, discount points are 100% deductible in the year you buy your home (not refinance). If you pay 1 point ($4,000 on $400K loan) to lower your rate, you can deduct the full $4,000 on your taxes. This is one of the best tax benefits of buying a home.

Question 3

Can I deduct appraisal fees?

Accepted Answer

NO, appraisal fees ($400-$800) are NOT tax-deductible. They are considered a cost of obtaining the loan, not interest or taxes. Same goes for inspection fees, title insurance, and attorney fees - none are deductible.

Question 4

How much can I save in taxes from closing costs?

Accepted Answer

On a $400,000 home purchase: Prepaid interest ($850) + Property taxes ($3,000) + 1 point ($3,200) = $7,050 in deductions. At 24% tax bracket, that's $1,692 in tax savings. At 32% bracket, that's $2,256 saved. Higher purchase prices and tax brackets save even more.

Question 5

What's the difference between points and origination fees?

Accepted Answer

CRITICAL DIFFERENCE: Discount points (paid to lower your rate) are 100% tax-deductible. Origination fees (lender's processing fee) are NOT deductible. Make sure your closing disclosure clearly separates these. 1 point = 1% of loan amount and must lower your rate to be deductible.

Question 6

Are refinance closing costs tax-deductible?

Accepted Answer

DIFFERENT RULES: When you refinance, points must be deducted over the life of the loan (not all at once). If you pay $4,000 in points on a 30-year refinance, you can only deduct $133/year ($4,000 ÷ 30 years). However, prepaid interest and property taxes are still fully deductible in the year paid.

Question 7

Can I deduct HOA fees paid at closing?

Accepted Answer

NO, HOA fees are never tax-deductible (unless you have a home office). Even if you prepay 6 months of HOA fees at closing, they are not deductible. Only mortgage interest and property taxes qualify.

Question 8

What if I close in December - can I deduct everything for this year?

Accepted Answer

YES! If you close before December 31st, you can deduct all eligible closing costs (prepaid interest, property taxes, points) on your current year's tax return. This is why many buyers rush to close before year-end - immediate tax savings of $2,000-$5,000+.