Can I deduct the closing costs from purchasing my home?
The closing statement to a real estate purchase contains many potential tax deductions. Treatment of closing statement line items differ depending on whether the property is business (rental) property or used for a personal residence.
Below is a summary of a typical tax treatment of major line items of the often used 2 page HUD-1 closing statement. However, there may also be certain items that are treated differently depending on your particular situation.
A notation of "basis" refers to costs that become part of the total capitalized cost of the property and not currently deductible, however, these costs can be deducted at the time of sale, or earlier via depreciation if they relate to rental property.
Deductible items are in bold. Nondeductible items are in red. If the item is not coded, in most cases, it it just added to the basis of your home. Please Note: How you treat each item also depends on whether the home is your Personal Residence (left column) or if it is a Rental Property (right column).
HUD-1 Line #
Closing Statement Description
Tax Treatment - Personal Residence
Tax Treatment - Rental Property
101
Contract Sales Price
basis - is relevant if property is later sold or rented
basis - building portion eligible for depreciation
102
Personal Property
basis - is relevant if property is later sold or rented
basis - eligible for accelerated depreciation
103
Settlement Charges
See lines 700-1305 below
See lines 700-1305 below
104-105
Miscellaneous
Varies
Varies
106
City/town taxes (See line 210 below)
Deductible as itemized deduction on form 1040 schedule A *
Deductible as rental expense*
107
County taxes (See line 211 below)
Deductible as itemized deduction on form 1040 schedule A *
Deductible as rental expense*
108
Assessments (See line 212 below)
LID assessments are part of basis, other assessments are typically non-deductible.
LID assessments are part of basis, other assessments are typically deductible. *
109-112
Miscellaneous
Varies
Varies
210
City/town taxes (See line 106 above)
* This credit reduces deductible taxes on line 106 above
* This credit reduces deductible taxes on line 106 above
211
County taxes (See line 107 above)
* This credit reduces deductible taxes on line 107 above
* This credit reduces deductible taxes on line 107 above
212
Assessments (See line 108 above)
* This credit reduces assessments on line 108 above
* This credit reduces assessments on line 108 above
213-216
Miscellaneous
Varies
Varies
HUD-1 Line #
Closing Statement Description
Tax Treatment - Personal Residence
Tax Treatment - Rental Property
700-703
Sales & Realtors Commissions
basis
basis
801
Loan Origination Fee
Deductible as itemized deduction ("points") on form 1040 schedule A.
Amortized over term of mortgage
802
Loan Discount
Deductible as itemized deduction ("points") on form 1040 schedule A
Amortized over term of mortgage
803
Appraisal Fee
basis
basis
804
Credit Report
Non-deductible
basis
805
Inspection Fee
basis
basis
806
Mortgage Insurance Fee
Non-deductible
Amortized over term of mortgage
807
Assumption Fee
Non-deductible
Amortized over term of mortgage
808-811
Miscellaneous
varies
varies
901
Prorated Interest
Deductible as itemized deduction - this interest typically included in year end interest statement (form 1098)
Deductible as rental expense - this interest typically included in year end interest statement (form 1098)
902
Mortgage Insurance
Non-deductible
Amortized over term of mortgage
903
Hazard Insurance
Non-deductible
Deductible as rental expense
904-905
Miscellaneous
Varies
Varies
1001
Hazard Insurance
Non-deductible
Reserves - deductible when paid from escrow
1002
Mortgage Insurance
Non-deductible
Reserves - amortizable when paid from escrow
1003
City property taxes
Reserves - deductible as itemized deduction when paid from escrow
Reserves - deductible when paid from escrow
1004
County property taxes
Reserves - deductible as itemized deduction when paid from escrow
Reserves - deductible when paid from escrow
1005
Assessments
varies
varies
1006-8
Miscellaneous
varies
varies
1101
Settlement Fees
basis
basis
1102
Abstract or title search
basis
basis
1103
Title Examination
basis
basis
1104
Title Insurance binder
basis
basis
1105
Document Preparation
basis
basis
1106
Notary Fees
basis
basis
1107
Attorneys Fees
basis
Typically part of basis, if tenant related may be amortized over term of lease (s)
1108-1110
Title Insurance
basis
basis
1111-1113
Miscellaneous
Varies
Varies
1201
Recording Fees
basis
basis
1202
City/County tax stamps
basis
basis
1203
State tax/stamps
basis
basis
1204-05
Miscellaneous
Varies
Varies
1301
Survey
basis
basis
1302
Pest Inspection
basis
basis
1303-1305
Miscellaneous
Varies
Varies
The above table summarizes tax treatment to buyers of properties - for sellers, these costs (including remaining basis) are deducted at the time of sale, with the exception of costs that are specifically noted as non-deductible. Of course, capital gains may not be recognized if the property is a personal residence qualifying for the $ 250,000/$ 500,000 capital gain exclusion, or a rental property disposed of via a tax free exchange.
