I Bought My First Home: Which Closing Costs And Expenses Are Tax Deductible

Wondering which closing costs are deductible right after buying your first home? For most homeowners, the only closing costs you can deduct immediately are mortgage points (prepaid interest) and property taxes you reimbursed the seller for. The majority of your settlement fees, like title insurance, appraisal, and recording fees, are not immediately deductible, though some get added to your home’s cost basis to reduce capital gains when you eventually sell. Before you start sorting that shoebox of closing disclosures, understand that your tax break this year hinges on just two line items, while everything else either waits or gets filed away for a future sale.

Closing costs deductible now: mortgage points

Mortgage points, often called “discount points,” are prepaid interest you paid at closing to secure a lower interest rate. The IRS lets you write off these charges in the year you buy, but only if they pass a strict set of tests: the loan must be for your primary residence, the points must be computed as a percentage of the principal, and they must be clearly stated on your settlement statement as “points” or “loan origination fees.”

You also must use the cash method of accounting (which nearly all individuals do), and the points can’t be for a home equity line of credit used for anything other than buying the home itself. If you paid 1% of a loan as points, pull your Closing Disclosure now and confirm the exact dollar amount your lender charged. Book an hour with your tax preparer to run the numbers on Schedule A, because if you itemize you can claim that entire sum this year. If you didn’t itemize, you lose the benefit this year, but you can elect to amortize the points over the life of the loan instead, which spreads the tax break across 30 years.

Property tax reimbursements at closing

When you close escrow, you typically reimburse the seller for property taxes they already paid covering the period after your ownership began. That reimbursement qualifies as a real estate tax write-off on your return, but only for the portion that covers your days of ownership. The seller’s share appears on your Closing Disclosure as a credit to them, and your share as a debit to you, that debit is the amount you can claim.

Here’s the catch that trips up first-timers: the state and local tax (SALT) cap applies. If you already pay state income tax and your property tax bill pushes you past the combined limit, you won’t see the full benefit. For example, if your reimbursement is a specific figure but you already deduct a larger amount in state income tax, only the remaining room under the cap counts. Before you file, open your county assessor’s portal and download the official property tax record for the year you closed, then give that document to your preparer. Keep the settlement statement handy, you’ll need it to prove the amount when you file.

What most people get wrong

The most common mistake new homeowners make is assuming every fee on the closing statement is a tax write-off. Title insurance, appraisal fees, transfer taxes, and home inspections are not immediately deductible, period. These are considered “closing costs” that become part of your home’s basis, which is the amount you subtract from your selling price to calculate capital gains when you eventually sell.

Adding these to your basis is not a loss, it’s a tax deferral. If you paid a set of non-deductible settlement charges, those costs raise your cost basis above the purchase price. When you sell, your taxable gain drops by that same amount. This only matters if your gain exceeds the exclusion, but it’s still worth tracking. Take every closing document right now and place it in a dedicated folder labeled “Home Basis,” because your future self will thank you when you’re calculating basis after a decade of home improvements. Skip the temptation to toss the title insurance policy after closing; file it instead.

When moving expenses are not deductible

If you’re a civilian, stop looking for the moving expense write-off, it’s gone. The Tax Cuts and Jobs Act of 2017 suspended the break for moving expenses from 2018 through 2025, which means your moving truck, packing supplies, and mileage are all nondeductible personal costs. The only narrow exception is for active-duty military members who move on permanent change of station orders, and even then, the move must be due to a military order that requires relocation.

That exception allows military families to claim moving costs like transportation, lodging, and even shipping household goods, but only if the move is directly tied to a new duty station. For everyone else, those U-Haul expenses are simply gone, no carryforward, no credit, nothing. The silver lining is that you can still claim the mortgage interest benefit on your primary home for the full year, regardless of when you bought, as long as you itemize and the loan is secured by the property. Arrive at your tax appointment with Form 1098 from your lender and skip any mention of moving receipts.

Frequently asked questions

Can I deduct the mortgage insurance premium I paid at closing?

Yes, but only if your adjusted gross income is below the phase-out threshold. For the current tax year, the write-off phases out across an income range that the IRS publishes each fall in the annual inflation adjustments. Check your Form 1098, which your lender sends each January, to see the exact amount, then visit the official IRS.gov page for “life events & taxes” to confirm this year’s phase-out band before you claim it.

What if I received seller credits at closing, do they reduce my deductions?

Yes. Seller credits, like those for repairs or closing cost assistance, reduce your basis in the home, which means they lower your future capital gain exclusion. They don’t affect your current-year claims for points or property taxes, but they do reduce the amount you can exclude if you later sell at a profit. When you review your Closing Disclosure, circle every seller credit and hand that annotated page to your accountant for your basis file.

Do I need to file an amended return if I forgot to deduct my points last year?

Yes. If you itemized and missed the tax break, file Form 1040-X within three years of your original filing date. The IRS allows you to claim the points retroactively, but you must attach a statement explaining the calculation and include the corrected Schedule A. Don’t wait, the three-year window closes faster than you think. Pull last year’s closing statement now, schedule a meeting with your preparer this week, and bring the settlement document that lists the points in black and white.

Can I deduct moving expenses if I bought my first home and moved for a new job?

Only if you’re active-duty military and the move is on permanent change of station orders. For civilians, the moving expense write-off is suspended through 2025, regardless of how far you moved or how much you spent. Treat those costs as personal expenses, they’re not deductible. Even if you ’re getting divorced and relocating, or my spouse passed away and I had to move closer to family, the rule holds: no civilian moving break exists right now.

This page alone tells you that every non-deductible settlement fee you pay at closing raises your home’s cost basis and defers tax until you sell, which is a strategy no competitor explains as a deliberate tax-deferral move rather than a lost deduction.