Deductions on Home Purchases

If you bought your home after somebody else built it, you would have paid settlement or closing costs in addition to the contract price to the builder. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties depending on the prevailing rules. If you built your home, you would have most probably paid these costs when you bought the land or settled on your mortgage. The settlements or closing costs that you can deduct on your tax return are home mortgage interest, points, and certain real estate tax which you can deduct in the tax year you buy your home.

While you can include in your tax basis the settlement fees and closing costs that are needed for buying your home you cannot include in your tax basis the fees and costs that are for getting a mortgage loan or a fee that is for buying the home if you would have paid it even if you paid for the home. State and local personal property tax can be deducted on your tax returns while you cannot deduct federal income tax or employee contributions to private or voluntary disability plans.