The Basics. In order to deduct the permissible closing costs, you must itemize on Schedule A of IRS Form 1040. As opposed to taking the standard deduction, itemizing requires you to keep track of each deductible expense and list the amount paid when you file your return.
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The IRS, for example, allows you to deduct points but not appraisal fees. Get proper documentation of closing costs. The details of a real estate transaction are documented on a HUD1 form, also known as the settlement statement.
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Enter on Schedule A (Form 1040), line 10, the home mortgage interest and points reported to you on Form 1098 (discussed next). If you did not receive a Form 1098, enter your deductible interest on line 11, and any deductible points on line 12.
https://www.irs.gov/publications/p530/ar02.html
The IRS allows you to deduct certain expenses involved in owning a home, including some closing costs associated with the purchase or refinance of a home. The rules that govern what you may claim as deductions are contained in IRS Publication 530.
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For example, real estate taxes go on line 6; points could go on line 10 or 12; mortgage interest on line 10 or 11; and mortgage insurance on line 13. File your tax return and make sure to keep all copies of relevant documents for at least three years in case you get audited.
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Instead, you add the $1,375 to the cost (basis) of your home. You owned the home in 2014 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2015 return of $949 [(243 ÷ 365) × $1,425] paid in 2015 for 2014. You add the remaining $476 ($1,425 − $949) of taxes paid in 2015 to the cost (basis) of your home.
https://www.irs.gov/publications/p530/ar02.html
Mortgage interest is required on a new loan for the remainder of the month in which the loan funds, the total of which is tax-deductible. A borrower whose transaction closes on January 15 must pay the lender 16 days' worth of mortgage interest to cover the remainder of the month.
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The seller may have paid taxes beyond the closing date, entitling the seller to a reimbursement of prorated taxes, which is debited from buyer closing costs. As the new homeowner, your fair share of taxes includes the day of sale and beyond.
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Note that if you do not itemize, you will take the standardized deduction instead -- but you cannot claim closing cost deductions in addition to the standard deduction. If you file manually, you will need form Schedule A in addition to IRS form 1040. Different portions of the form are used for different deductions.
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Taking a deduction on your tax return reduces your gross taxable income, thus saving you money for the tax year in which you paid the expense. In addition to the recurring expense of mortgage interest and property taxes, you can deduct one-time loan fees known as points that you pay at closing.
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where to report closing costs on federal tax return
You have to report closing costs on federal tax return on Schedule A of IRS Form 1040. Report closing costs on federal tax return on Schedule A of the Internal Revenue Services Form 1040.