Most components of the closing process -- like home inspections, attorney fees and processing fees -- are not deductible. Two components that are deductible are loan origination fees and points purchased. The loan origination fee found on your settlement documents is deductible as long as it's expressed in points. Each point equals 1 percent of your loan. If you purchased discount points to lower your total interest rate, those are also deductible.
Loan Fees and Points
Mortgage Interest and Mortgage Insurance
Mortgage interest expense is usually the largest income tax deduction from purchasing and owning a home. You might pay pre-paid mortgage interest when you purchase the home and you'll pay more through your monthly mortgage payments. Your lender will send you an annual Form 1098 that totals the amount of mortgage interest you can deduct. If you have paid mortgage insurance and it is deductible, it will also be listed on the 1098. Mortgage insurance premiums are only deductible if you refinanced your home in certain years.
When you itemize your deductions, you're allowed to deduct taxes tied to your home. You might pay pro-rated property tax when you first purchase your home and you may get another bill before the end of the year. If you paid pro-rated taxes, it will be noted in your settlement document. You won't get an IRS form for the property taxes you paid, so save check copies and documentation of any property taxes payments.
Claiming the Deductions
Homeowners can claim these deductions by completing Schedule A of Form 1040. Record property tax payments in Box 6 of "Taxes You Paid." Mortgage interest, loan origination fees and points go in Box 10 of "Interest You Paid." If your mortgage insurance premiums are deductible, put them in Box 10 of "Interest You Paid." Report the total amount of your itemized deductions, listed in line 29, on line 40 of Form 1040.