Buying your first home: what is and isn't deductible

Of everything on your closing statement, the deductible part is mortgage interest on the home plus certain real estate taxes. Most of the rest is added to what the house cost you, which matters when you sell rather than now.

What changes for 2026

On a 2025 return, mortgage insurance premiums are no longer an itemized deduction; the deduction has lapsed and there is nothing to claim. For later years the statute changed: the enrolled text of H.R.1 in the 119th Congress, at section 70108, amends the qualified residence interest rules by inserting a new subclause that treats mortgage insurance premiums as interest, and the amendment made by that section applies to tax years that begin after the end of 2025.

Publication 530 and Publication 936 for 2025 both still describe that deduction as gone; they cover 2025 returns, so the change belongs to a later filing season.

The short answer on closing costs

From the whole settlement, two items and no others come off as deductions: the mortgage interest on the home, and certain real estate taxes. You take them in the year of the purchase, and only if you itemize. Whether itemizing beats the standard deduction at all is a separate question, and the standard deduction against itemizing settles it.

The rest is not thrown away, which is the good news underneath the disappointment. Certain other settlement and closing costs are added to the basis of your home, and basis is what an eventual gain is measured against.

What goes into basis

Several fees on the statement go into the home's original basis instead. Owner's title insurance is one; so are transfer or stamp taxes, recording fees, the cost of a survey, and abstract of title fees. Charges for putting in utility services count, and so do legal fees, including the title search and drawing up the sales contract and the deed. So does anything the seller owed that you agreed to pay.

A second group is neither deductible nor added to basis, and it is the one that stings. Fire insurance premiums sit here, along with anything you paid to use utilities or other services while occupying the place ahead of closing, and any rent for that early occupancy. So do the charges tied to getting or refinancing the mortgage loan itself: a loan assumption fee, the cost of a credit report, the appraisal fee a lender required, and mortgage insurance premiums. Those are the price of borrowing, and they do nothing for you at tax time.

Points, and the exception that lets you deduct them now

Points travel under other names on a settlement statement: a loan origination fee, a maximum loan charge, loan discount, discount points. The general rule is that you cannot deduct the full amount in the year you paid it, because points are prepaid interest and are generally deducted over the term of the mortgage.

There is an exception, and it only helps if every one of its nine tests is met. Your main home secures the loan. Where the loan was made, charging points is an established business practice, and what you were charged was no more than that area normally charges. You are on the cash method, reporting income when received and expenses when paid. The points did not stand in for items a settlement statement ordinarily lists separately, such as appraisal, inspection, title or attorney fees, or property taxes. Money you put in at or before closing, added to anything the seller paid in points, came to no less than the points charged. The borrowing bought or built that main home. The charge was worked out as a percentage of the mortgage principal. And the settlement statement shows the amount plainly, described as points charged for the mortgage.

Points the seller pays on your behalf count as points you paid, which is worth knowing when a seller has offered to buy the rate down; the trade-off is that your basis is reduced by them. A refinance is treated differently again, and Publication 530 is where to work that through.

Property tax in the year you buy

Real estate taxes for the year of the sale are split between buyer and seller by the part of the year each owned the home, and only your share is deductible. A part relating to a period before you owned it, such as back taxes the seller owed and you agreed to pay, goes into basis instead.

Neither of the two real deductions is retaught here. Interest is deductible up to the acquisition debt limit and only if you itemize; property tax joins your other state and local taxes under their shared cap. Form 1098 carries both limits, and Texas property tax and the sales tax deduction covers the Texas side. Both are deductions rather than credits, and deductions against credits covers the difference.

Mortgage insurance, year by year

Keep the two years apart, because they say different things. On a 2025 return, mortgage insurance premiums have lost their place as an itemized deduction; that deduction has expired and there is nothing to claim, and the premiums sit in the second group above, neither deductible nor added to basis.

For a taxable year beginning after 2025, the amendment described at the top of this article treats mortgage insurance premiums as interest, so a buyer paying them now should keep the statements. That describes a change in the law rather than IRS guidance: no IRS page has yet restated it.

The folder you will need in ten years

Keep the settlement statement, every improvement invoice, and anything else showing what you paid, somewhere you will still find it in a decade. Basis is built at closing and added to across the years you own the place, and nobody reconstructs it afterwards from memory. When the sale finally comes, selling your home is where that folder earns its keep.