Can You Write Off Closing Costs in 2018?
Closing costs are an inevitable part of the home buying process, and they can be a significant financial burden. As a homeowner, you might be wondering if you can write off these costs on your taxes. The answer to this question can vary depending on several factors, including the nature of the closing costs and the tax laws in effect during the year in question. In this article, we will explore whether you can write off closing costs in 2018.
Understanding Closing Costs
Closing costs refer to the fees and expenses incurred when purchasing a home. These costs typically include title insurance, appraisal fees, loan origination fees, attorney fees, and other related expenses. While these costs can vary widely from one transaction to another, they are generally calculated as a percentage of the home’s purchase price.
Writing Off Closing Costs in 2018
In 2018, the Tax Cuts and Jobs Act (TCJA) made significant changes to the tax deductions available to homeowners. One of the most notable changes was the elimination of the deduction for most mortgage interest expenses, except for interest on loans up to $750,000 for homes purchased after December 15, 2017.
Can You Write Off Closing Costs in 2018?
The short answer is that you can write off certain closing costs in 2018, but the process is more complex than in previous years. Here are some key points to consider:
1. Points Paid on a Home Loan: You can deduct points paid on a home loan if they are paid in the year of purchase. Points are essentially pre-paid interest and can be deducted in the year they are paid. This applies to both purchase and refinance transactions.
2. Home Improvement Loan Points: If you take out a home improvement loan, you can also deduct the points paid on that loan in the year of purchase.
3. Property Tax and Home Insurance Premiums: While not considered closing costs, property taxes and home insurance premiums paid at closing can be deducted in the year they are paid.
4. Home Office Deduction: If you use a portion of your home exclusively for business purposes, you may be able to deduct a portion of your closing costs related to that space.
5. Limited Deduction for Other Closing Costs: You may be able to deduct other closing costs, such as attorney fees, title search fees, and credit report fees, but only to the extent they are directly attributable to the acquisition, construction, or substantial improvement of your home.
Conclusion
In conclusion, while the TCJA has made it more challenging to write off closing costs in 2018, certain costs can still be deducted. It is important to consult with a tax professional to determine which closing costs you can write off and how to properly document them for tax purposes. By understanding the tax laws and your specific situation, you can maximize your tax savings and ensure compliance with IRS regulations.
