The answer pasted below was written for closing on a house but it also applies to land that you are building a house on, with the following adjustment: You can deduct the interest on a construction loan as if it was a mortgage, but only if (1) you complete construction within 2 years, and (2) the construction loan converts to a mortgage at that time.
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, this interest may not be included on your 1098. You can add it if it wasn't included.
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.
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 and deducted when you make your monthly mortgage payment. (If you made 5 payments in 2016, deduct 5/84th of the lump sum). These allocated amount are supposed to be included on your 1098 but if they aren't, you can add them yourself. You will need to keep track of the 84 month allocation because Turbotax does not. Also, mortgage insurance 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.
Your down payment is not deductible, that's you paying for the house. Money put into escrow is not deductible until it is actually used to pay a property tax bill. Until then it's still technically your money.
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