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Top Questions

Since my settlement or closing fees are a substantial amount of money, can I deduct them on my income tax return?

The items given to you on your HUD-1 statement fall into three categories relative to your income taxes: tax-deductible in the current year, capitalized (added to the price paid for the property and thereby becoming part of your base for capital gains tax purposes when you sell) or neither (personal expense). The tax-deductible items are interest, points, loan-orgination fees, any prepayment penalty, and property taxes. Those items which are capitalized are the termite clearance costs, title insurance premiums, attorney's fees, appraisal fees, recording fees, notary fees, escrow fees, transfer taxes, and the ALTA inspection fee. The personal expense items are the first insurance premium, private mortgage insurance, and any money put into an impound account. Reminder: property taxes paid on real estate are a deductible item on your personal income tax return. Please refer to page 193 of The Complete Guide to Your Real Estate Closing for further clarification.

Related Information

TIP
Points on a refinance mortgage must be deducted over the life of the loan, not in the year paid, as on a first time mortgage.

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