Can I Deduct My Home's Closing Costs?
If you bought and sold a property in the last year, you might be wondering if your closing costs are tax-deductible.
As with homeownership, there are great tax benefits that are associated with it. When you make improvements to the home and increase wealth due to your home's value there are certain tax advantages. But immediately, you may want to know if your closing costs have been tax-deductible.
What are closing costs?
Closing costs are all the miscellaneous fees you pay when you obtain a mortgage loan and buy or sell a house. They typically run from about 2% to 6% of the total loan amount.
They will include things like your property taxes that may need to be paid or prorated, recording fees for the loan, loan origination fees, partial homeowners insurance, primary mortgage insurance or private mortgage insurance, appraisal fees, credit reporting and pulling fees, inspection costs, title search and insurance, potential surveys, discount fees, escrow fees, and any prepaid daily interest charges. Yes, that's a lot, but this is why they are all rounded up into one big estimate call closing costs. These can be split with the seller, built into the cost of the home in some situations, or paid for at closing.
Because there are so many different costs involved in closing costs, not all are tax-deductible but some are. The tax code changes frequently so it's important to talk with your tax professional because if you recently sold a home in the last five years, what may have been tax-deductible then it may not be now and vice versa. But here are some potential closing costs that can be deducted from your taxes.
This deduction will allow you to take the amount of interest you pay when you buy a new home and deduct it off of your taxes. It's one of the best tax deductions for homebuyers.
Primary or private mortgage insurance can be deducted for 2020 but after 2020, this closing cost deduction will no longer be available unless it's extended by Congress.
Any discount points you paid when you closed on your home loan can be tax-deductible. Ask your tax professional or visit the IRS website to determine whether you can take this deduction in the year you purchased the house or whether you're required to deduct the points over the life of the loan.
State and local real estate taxes.
Oregon does have a few deductions that can include state and local taxes as well as your property taxes but consult your tax professional on what you can deduct out of this fee.
As with any deductions, if they don't meet the standard deductions, it's just better to take that one instead. Itemizing your deductions may or may not be beneficial but if you have purchased the house, it's definitely beneficial to give it a try. Depending on the price of homes these days, you may have a lot to deduct, much more than the standard deduction, which is well worth it.
For more information on Clearwater Beach tax deductions, or homebuying, browse recent blog posts below or contact our office at any time.
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