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Tax Relief for Homebuyers
Did you know that some mortgage closing costs are tax deductible?
When buying a home, the excitement of closing on your dream home is often met by the reality of mortgage closing costs. These costs can add up quickly and include fees for appraisals, inspections, origination, and more. However, there’s a silver lining: some of these expenses might be tax-deductible. Here’s what you need to know.
Which closing costs are tax deductible?
While not all closing costs are tax-deductible, a few key expenses can help lower your tax burden:
The interest you pay on your mortgage is tax-deductible, including prepaid interest. “Points” or “discount points,” is considered pre-paid interest as well, it’s the amount you pay upfront to lower your mortgage interest rate. To qualify for this deduction the loan must be secured by your primary or secondary home and the points must be a percentage of the loan amount.
If you prepaid property taxes as part of your closing costs, these payments are tax-deductible. Be sure to distinguish these from escrowed property taxes, which may not be deductible until they’re actually paid to the taxing authority.
If your loan includes private mortgage insurance (PMI), premiums paid at closing, they may also be deductible. However, the eligibility for this deduction often depends on your income level and tax laws, which can vary annually.
It’s important to note that many closing costs do not qualify for deductions, including:
Appraisal and inspection fees, Title insurance, Homeowners insurance, HOA fees, Transfer taxes…
Buying a home is a significant financial milestone and understanding which closing costs are tax-deductible can provide some financial relief. Tax laws change frequently, so it’s wise to seek advice from a tax advisor or professional to ensure you’re maximizing your deductions correctly. Keep detailed records of your closing statement (HUD-1 or Closing Disclosure) and receipts for eligible expenses.
Reach out to a mortgage loan officer for any additional info or questions.
