Deductibility of Loan Closing Costs
The costs of obtaining a loan are a deductible expense. This overview summarizes what is deductible and when.
Primary Residence
- Points paid for purchasing your primary residence can be deducted in the year you buy the house.
- Points paid for refinancing can be deducted, but only over the life of the new loan, except:
- Points paid for refinancing to substantially improve the property, such as adding a room, can be deducted immediately.
Second home or Vacation home
- Points paid for buying or refinancing a can be deducted over the life of the loan.
Rental Property
- Points paid for refinancing rental properties (and properties used in a trade or business) are deductible over the life of the loan.
Seller paid points for the Buyer
- Sellers who pay points for the buyer cannot deduct those points, but they can reduce their profit. The buyer can deduct the point if she reduces her basis by the same amount.
Notes
- Certain points and certain fees are deductible, others are not. Your tax preparer will help you with this. For example, application, processing, underwriting, and such are not deductible, but they do increase the tax basis of the home.
- When refinancing, the deduction is pro-rated based on how many payments you make that year.
- To deduct, you have to itemize your tax return.
- Deductibility is affected by income, type of financing, and type of property. Yowza!
Important disclaimer: This is general information, not tax advice. Federal and state tax laws change frequently. We are not tax or legal advisors. Please consult a qualified tax or legal professional before acting on anything described here.