Are closing costs deductible?

The rule in one sentence

Publication 530 starts from a practical observation: if you bought your home, you probably paid settlement or closing costs on top of the contract price, divided between you and the seller by the sales contract, local custom, or the understanding of the parties. It then sorts every line on the statement into one of three piles. The first pile is deductible: home mortgage interest and certain real estate taxes. The second pile is added to the basis of the home. The third pile is neither, and it consists mostly of the cost of getting the loan.

The test that separates the second pile from the third is straightforward. A fee is for buying the home if you would have had to pay it even if you paid cash for the home. Fees of that kind are basis items. Fees that exist only because you borrowed are not.

What you can deduct

Two items from the settlement statement are deductible in the year you buy, if you itemize on Schedule A. The first is the interest you pay at settlement, which the lender should include on your mortgage interest statement. The second is your share of the real estate taxes, divided by days owned: the seller is treated as paying through the day before the date of sale and you from the date of sale on. Points, which are prepaid interest, follow their own tests in Publication 530 and Publication 936; this page does not cover them. Anything else on the statement should be assumed non-deductible unless the publication says otherwise.

What you add to basis

The publication lists settlement fees and closing costs you can include in the original basis of your home: abstract fees (abstract of title fees), charges for installing utility services, legal fees (including the title search and preparation of the sales contract and deed), recording fees, surveys, transfer or stamp taxes, and owner's title insurance. It also includes any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, the cost of improvements or repairs, and sales commissions.

Adding to basis is not a deduction on this year's return. It matters later, when you sell: a higher basis means a lower gain, and it also feeds the depreciation base if part of the home is later used for business or rent. The cost of a home built for you works the same way, with most closing costs paid when you buy the land or settle on your mortgage included in cost.

What is neither deductible nor part of basis

Publication 530 lists settlement costs that you cannot deduct or add to basis: fire insurance premiums, charges for using utilities or other services related to occupancy of the home before closing, rent for occupying the home before closing, and charges connected with getting or refinancing a mortgage loan. The examples of loan charges are loan assumption fees, the cost of a credit report, a fee for an appraisal required by a lender, and mortgage insurance premiums. Amounts a lender charges for specific services connected to the loan, including appraisal fees, notary fees and preparation costs for the mortgage note or deed of trust, are not interest and cannot be deducted as points either.

Adjustments for what the seller paid

Two seller-paid items change your basis. If the seller actually paid for something you are liable for and could deduct, such as your share of the year-of-sale real estate taxes, you reduce your basis by that amount unless the settlement statement charges you for it. And if you bought your home after April 3, 1994, you must reduce your basis by any points the seller paid for your mortgage. If you bought after 1990 but before April 4, 1994, you reduce basis by seller-paid points only if you deducted them.

Worked example with invented numbers

You buy a home for $400,000. The settlement statement shows $2,200 of legal and title search fees, $350 recording and $650 survey (all basis items, $3,200 together), $1,100 of prepaid mortgage interest plus $1,500 of your share of property taxes (together $2,600 that you may deduct instead of adding to basis), and $475 appraisal, $60 credit report and $900 of first-year mortgage insurance (together $1,435 that is neither). Your starting basis is $400,000 + $3,200 = $403,200. The $2,600 can be deducted on Schedule A if you itemize, and the $1,435 does nothing for your taxes. Enter those numbers above to see the same split.

The totals also show why nothing should be assumed from the label alone. A line called a title fee might be an owner's policy (a basis item) or the lender's policy requirement, which the publication places with charges for getting the loan. If the statement does not make it clear, ask the settlement agent which policy a charge belongs to before you file.

Keep the settlement statement

Your closing statement is the primary record of both the deductible items and the basis items. Keep it for as long as you own the home and for the period of limitations after you sell. The publication tells you to keep records of anything that increases or decreases basis. To see how basis then moves over time, read what the cost basis of a home is and whether home improvements are deductible. For the tax item, see are real estate taxes deductible.

Sources

• IRS Publication 530, Tax Information for Homeowners (2025): the “Cost as Basis” section, including “Settlement or closing costs”, “Items added to basis”, “Items not added to basis and not deductible” and “Points paid by seller”. Read November 2, 2026.

Edition read: Publication 530 (2025), for use in preparing 2025 returns. Dollar limits, credits and rates in the publication are for 2025 and can change; check the current publication and the Schedule A instructions for your tax year. This page summarizes the publications and does not replace them. Marked for human review.