Today TaxMama hears from Milton in New Jersey who tells us, “I purchased a home in 2007, and someone told me the closing cost were tax deductible. Is this true?”
Good question. There are lots and lots of lines on that two-page HUD-1 form.
Most of them are not deductible. But they do get added to the purchase price of your home. So they increase your tax cost – and reduce your profits – when you sell the house.
Some of them are simply current expenses for things like your homeowner’s insurance (Line 903), or deposits into your lender’s impound/reserve account to cover future property taxes and insurance premiums.
All right, so what IS deductible?
1) Points that you paid on the new loan to buy the house (Lines 801 and 802)
2) PMI (Private Mortgage Insurance) premiums for 2007 coverage. If you prepaid premiums for future years – those will be deductible in the future. (line 902) – Effective 2007
3) Property taxes you paid to reimburse the owner for having pre-paid your share of the fiscal year’s taxes. Lines 106 and 107. (Line 108 is not deductible.)
That’s really about all that’s deductible.
Interest payments you see on the HUD statement will be included in the 1098 you receive from your lenders. (Line 901) Just be careful. Sometimes loans get sold two or three times before the year has ended.
Make sure you have 1098s for the full amount of interest you paid for the year.
And remember, you can find answers to all kinds of questions about buying a home and taxes and other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- HUD-1 Form :: Escrow Closing (Summary) Statement – 2 pages