Closing costs

[ediehl50]

I bought a home and closed on 2-1-23 and paid closing costs. I received a 1098 which only showed interest paid and taxes for half the year. On the closing statement it shows pre-paid tax and interest plus recording fees, processing fees appraisal fees etc. On the 1098 it showed no points. But on closing statement shows origination fees . What can I deduct on my Turbo Tax and why is not all deductible since all paid in 2023?

Where do I add the pre-paid interest and taxes that's on closing statement and where do i add the 2nd half of my taxes I paid ?  Should all these closing costs be deductible? When I sell my home years from now  will I have to pay closing costs again> 

[MayaD]

For your primary, the only deductible closing costs are home mortgage interest and certain real estate taxes. These deductible costs generally include:

• Real estate taxes paid at closing
• Mortgage interest paid when the cost was settled
• Interest paid at the house’s purchase
• Loan origination fees, known as “points”

For more information check: Can I deduct mortgage closing costs?

To enter property tax not reported on 1098:

1. Sign in and open your return if you're not already in it.
2. Inside TurboTax, search for property tax and select the Jump to link at the top of your search results.
3. Answer Yes to the question Did you pay property or real estate taxes in 2023?

When you sell your home, both you and the buyer pay closing costs.

[xmasbaby0]

@ediehl50 You have posted about this issue multiple times in multiple threads, and have received knowledgeable replies each time.  I am going to respectfully suggest that you upgrade this year to online "Live" so that a tax expert can help you understand an issue that is clearly very confusing for you when you are trying to prepare your tax return.

https://ttlc.intuit.com/community/choosing-a-product/help/how-do-i-get-turbotax-live/00/27305

[Opus 17]

As a matter of tax law, expenses required to purchase a property are not tax deductible, they are adjustments to the cost (cost basis).  For example, if you paid $100,000 for a house and you were also required to pay $1000 in county transfer taxes and deed recording fees, you would consider your purchase price to be $101,000.  This is not a tax deduction at the time of purchase but may reduce your taxable gains when you sell.

However, this only applies to costs that you paid or would have paid even if you paid with cash.  Costs that you only paid because of a mortgage are not adjustments to basis and are not deductible, except for mortgage interest.  Other expenses of getting a mortgage are simply not deductible or allowed as a tax break, that's the law.

Property taxes are considered paid by you to the taxing authority (local government) for the period of time that you owned the home, even if you did not pay them directly to the local government.

See below for my previous explanation. 

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Your closing statement may show a property tax adjustment.  For example, suppose property taxes are paid in February for the Jan-Dec year, and you buy the house in July.  Because the seller paid a full year of taxes, you give the seller a credit at closing for the taxes that cover the days that you will own the home.  You can deduct those taxes as if you paid them directly to the city or county, even if they are not on your 1098.

Your closing statement may have daily interest.  For example, if you closed on July 28, you paid 3 days of interest (to the end of July).  Then your regular mortgage interest payments started with your September regular payment.  If that daily interest is not already included on your 1098 (you have to check this yourself), you can add that daily interest as "interest not on a 1098", with the name of the closing bank or agent.

If you paid points, they may be deductible as additional interest.  Points are a form of advanced interestyou pay to get a lower interest rate overall.  To be deductible, points must be a percentage of the loan amount (not the selling price) and must not be allocated by the bank to any other specific fee or service, such as the appraisal, application fee, underwriting fee, and so on.  There is a points interview in Turbotax, and the concept is discussed in detail in publication 936.

https://www.irs.gov/pub/irs-pdf/p936.pdf

Some other closing costs are adjustments to your cost and are counted as increasing the purchase price, which may reduce your capital gains when you sell, but is not a tax deduction now.  And some closing costs are neither an adjustment to basis or otherwise deductible.  You just pay them and get no benefit.  A discussion of this issue is found in publication 523 on page 8.

https://www.irs.gov/pub/irs-pdf/p523.pdf