House Closing Cost

selling house closing cost

So, you have purchases a house. Like the general public, you are probably confused about the way to settle all those house closing cost on your tax return. As you are potentially aware, these costs are divided between you and the vendor according to the sales contract, local custom or appreciation of the parties. If you built your house you most likely paid these costs when you bought the land or settled on your mortgage.

The only settlement or house closing cost on your first residence that you can subtract are mortgage interest and real estate taxes. Both these are not technically closing costs but you paid them at the time of closing. You subtract them in the year you buy your house if you itemise your deductions.

What about the other house closing cost? These include all those dreaded “fees” you get charged ; closing costs, title costs, HOA fees, etc… The bad news is they are NOT tax deductible. These costs are essentially costs you paid to purchase your home.

They do however add to the tax basis of your home. The following are items that you can add to the root of your home:

* Abstract costs ( abstract of title costs ) .

* Charges for installing utility services.

* Legal costs ( including charges for the title search and preparation of the sales contract and deed ).

* Recording fees.

* Surveys.

* Transfer taxes.

* Owner’s title insurance.

* Any amount the vendor owes that you agree to pay, such as back taxes or interest, recording or mortgage costs, cost for improvements or repairs, and sales commissions.

You will see the tax advantages of the charges above once you sell your first residence. At that point, you may take your purchase price and add the costs above to your tax basis to figure out the gain or loss on the sale of your home.

Other house closing costs that are deductible include prorated property taxes and points. There are items that the IRS does not allow you to deduct as closing costs. Below are examples of closing costs that you absolutely can’t absolutely can not nor adjust to your tax basis:

1. Fire insurance fees.

2. Charges for using utilities or other services related to occupancy of the home before closing.

3. Lease for occupying the home before closing.

4. Charges connected with getting or refinancing a mortgage, such as:

a. FHA or other mortgage insurance charges and VA funding fees,

b. Loan assumption fees,

c. Cost of a credit score, and

d. Fee for an appraisal required by a lender.

Related posts:

1. 80-10-10 Mortgage
2. Mortgage Interest Table
3. Interest Amortization Schedule