Yes. Some of the closing costs are tax deductible. The following information will help you get all your deductions.
You can deduct the mortgage interest and property tax paid in 2016 if you are able to itemized deductions. Be sure to include any points as well as mortgage insurance premiums (also known as MIP or PMI*). This information will be on the settlement statement, usually known as the HUD1, or on the year end statement from the lender. If property taxes were paid by you and not the lender you would determine that amount paid from your funds (not the escrow).
- Note: *Deducted over 84 months beginning with the first month of payment. VA funding fee or Rural Housing Service funding fee is fully deductible in the year of purchase and is not considered PMI.
The items on your HUD-1 or other Settlement Statement will fall into categories noted.
- Seller/Buyer: Amounts shown for your prorated share of property tax for the year of sale - 2016 (deducted on itemized deductions)
Buyer: Amounts shown for advance payments to escrow to cover any expense that may be needed before enough mortgage payments can be made such as insurance and/or property taxes (not deductible)
- Buyer: Points if applicable and mortgage interest (deducted on itemized deductions). Points paid by the seller are deducted by the buyer.
- Buyer: Occasionally there is a small amount of mortgage interest charged at settlement to cover the period from approval to closing. If you have the same lender in December it may be included on the Form 1098.
- Any other items on the settlement statement will be added as purchase expenses to the purchase price reducing the taxable gain on the sale in the future.
- If the standard deduction is used because it is higher then you would not use these expenses.
The purchase price will be contained with the documents showing your original investment when you bought it together and will be used against a future selling price to reduce any taxable gain at that time. If you make improvements that extend the life of the property retain the records to continue to track your cost of the property.
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