You can deduct mortgage interest that you pay on your main home where you live most of the time, and on any one second home. If you have more than one second home, you will have to decide which interest to deduct. You can consider this your second home even though you do not live there. However, you must be obligated on the mortgage or a co-owner of the home or both.
You can deduct property taxes on all US property that you own, including a first and second home, but the deduction is limited to $10,000 for all state and local taxes including income taxes and property taxes combined.
The part of your mortgage payment that goes to escrow is not tax-deductible as such. A portion may be tax-deductible as property taxes as of the date the property taxes are paid from the escrow account.
HOA fees are not tax-deductible.
Most closing costs are not deductible.
1. You can deduct mortgage interest if you are a borrower on the mortgage or a legal owner of the home and you are the person who paid the interest. At closing, you probably paid a few days of daily interest from the closing date to the end of the month, and this daily interest will be listed on your closing statement. You may deduct this daily interest even if it is not included in the 1098 that you receive from the lender.
2. You can deduct mortgage points if you are the person who actually paid the points and you are either a borrower or a co-owner. Points are a fee the bank charges to buy a discounted interest rate. To be deductible, points must be a percentage of the loan amount and they can’t be designated for as a fee for any other purpose, such as a flat application fee, a bank attorney fee, document preparation fee, or any other fee.
3. You can deduct property taxes that you paid as part of the closing, as long as you are a co-owner of the home. These will also be reflected on your closing statement even though they will likely not be on your 1098. For example, in most jurisdictions, property taxes are paid in advance. The owner might pay in February to cover the entire year of January to December. If you close in July, for example, you will give the seller a credit of property taxes on your closing statement to reimburse the seller for taxes that they paid in advance that cover the period of time that you will on the home. You can deduct these property taxes as if you pay them directly to the city or county.
Home improvements are not tax-deductible. They are added to the cost of basis of the home and may reduce the capital gains tax that you have to pay when you sell. An improvement is something that increases the value of the home or extends the useful life of the home or one of its systems. For example, a new air-conditioning unit extends the life of the home’s climate control system, and new doors likely increase the value of the home. Improvements must also be permanently attached to the real property, that means the land and anything attached to it. That means that a built-in wall oven or built-in refrigerator would be considered an improvement but a standalone stove or refrigerator is not.
Repairs are never tax-deductible and are not adjustments to the home’s cost. Repairs are just something that every responsible property owner is expected to do to maintain the value of their property. Repairs restore or keep the property in as-is condition and do not add value or increase the useful life of the home.
