Most closing costs are not deductible. Instead, they are added to the cost of the house and may reduce your capital gains when you sell. These closing costs are deductible in the year you closed (2016):
1. Daily mortgage interest from the day you closed to the end of the month. Shown on your closing document, it may not be included in your 1098.
2. Property taxes. Generally, the seller has prepaid a year's worth of property taxes and you will give a credit to the seller for the amount of tax that is allocated to the days you will own the home. That property tax credit is deductible as if you paid it directly to the city or county. This will also not be on your 1098. Your 1098 will only show any taxes paid in 2016 from your escrow directly to the taxing authority. If you have these taxes you can include them along with the tax adjustment mentioned above.
3. Mortgage insurance premiums. If you paid a lump sum premium for mortgage insurance from the VA or the Rural Housing Authority (called a funding fee) that is deductible in the year you close. Other lump sum mortgage insurance premiums must be spread out over 84 months (7 years) and deducted when you make your monthly mortgage payment. So if you made 4 payments in 2016 you would deduct 4/84th this year. Mortgage insurance paid at closing is supposed to be allocated over 84 months and included on the 1098, but not all banks are doing this. If you can tell that your lump sum PMI is not being allocated, you can add the allocation yourself in turbotax. You will have to keep track of the rest of the deduction yourself, turbotax doesn't track it for you. The Mortgage insurance deduction also has an income limit so not every one will qualify.
4. Mortgage "points." Origination fees or points are considered a form of mortgage interest and must be deducted over the life of the loan, unless you meet certain tests. If you paid points, turbotax will ask you questions to see if you can deduct them all at once (in the year you closed) or if you have to spread them out. Origination fees are considered points if they are a percentage of the loan amount (not a flat fee) and if they are not assigned to any specific services like document processing, attorney fee, or other specific costs.
