| So, you've purchases a house. Like most people, | | | | * Surveys. |
| you are probably confused about how to settle all | | | | * Transfer taxes. |
| those closing costs on your tax return. As you | | | | * Owner's title insurance. |
| are probably aware, these costs are divided | | | | * Any amount the seller owes that you agree to |
| between you and the seller according to the sales | | | | pay, such as back taxes or interest, recording or |
| contract, local custom or understanding of the | | | | mortgage fees, cost for improvements or repairs, |
| parties. If you built your home you probably paid | | | | and sales commissions. |
| these costs when you bought the land or settled | | | | You will see the tax benefits of the charges |
| on your mortgage. | | | | above once you sell your primary residence. At |
| The only settlement or closing costs on your | | | | that time, you'll take your purchase price and add |
| primary residence that you can deduct are home | | | | the costs above to your tax basis to determine |
| mortgage interest and real estate taxes. Both of | | | | the gain or loss on the sale of your home. |
| these are not technically closing costs but you | | | | Other closing costs that are deductible include |
| paid them at the time of closing. You deduct | | | | prorated property taxes and points. You can learn |
| them in the year you buy your home if you | | | | about prorated property taxes at You can learn |
| itemize your deductions. | | | | about points at |
| What about the other closing costs? These include | | | | There are items that the IRS does not allow you |
| all those dreaded "fees" you get charged; closing | | | | to deduct as closing costs. Below are examples of |
| fees, title fees, HOA fees, etc... The bad news is | | | | closing costs that you absolutely cannot deduct |
| that they are NOT tax deductible. These fees are | | | | nor adjust to your tax basis: |
| basically expenses you paid to purchase your | | | | 1. Fire insurance premiums. |
| home. | | | | 2. Charges for using utilities or other services |
| They do however add to the tax basis of your | | | | related to occupancy of the home before closing. |
| home. The following are items that you can add | | | | 3. Rent for occupying the home before closing. |
| to the basis of your home: | | | | 4. Charges connected with getting or refinancing a |
| * Abstract fees (abstract of title fees). | | | | mortgage loan, such as:a. FHA or other mortgage |
| * Charges for installing utility services. | | | | insurance premiums and VA funding fees,b. Loan |
| * Legal fees (including fees for the title search | | | | assumption fees,c. Cost of a credit report, andd. |
| and preparation of the sales contract and deed). | | | | Fee for an appraisal required by a lender. |
| * Recording fees. | | | | |