When paying closing costs, taxes should be something that you consider. One of the major benefits of having a mortgage is the interest deduction on your taxes. At the beginning of a mortgage, the majority of your payment is going to be interest. This means that you will get a considerable deduction on your income taxes at the end of the year. Another part of that deduction has to do with your closing costs. However, you can not deduct the entire amount of your closing costs. Here are a few things to consider about how closing costs can affect your taxes.
When you buy a house, you can deduct the points on the mortgage. Sometimes this is referred to as the loan origination fee or by some other name. One point is equal to 1% of the total loan amount. Therefore, if your loan amount is $200,000, one point is equal to $2000. If you paid two points towards the closing costs in this situation, you would be able to deduct $4000 from your income taxes.
There are a lot of different expenses on most mortgages that are considered closing costs. However, the only thing that you need to worry about when it comes to taxes are the points involved.