Closing costs show up when you’re buying a property, and you’ll also notice that you’re responsible for closing costs when you refinance a loan. Today, we’re explaining what they are and why they make a useful tax deduction.
What Are Closing Costs?
A good example of closing costs would be when you get your refinancing statement and there’s a list of fees that you’ll have to pay. That list might include title insurance, notary fees, and any of those other costs that are incurred during the refinance. If you look at your escrow statement, you might see some pro-rated figures for things like property insurance. That wouldn’t be considered a closing cost, but everything else you’re being charged during a refinance can be categorized as closing costs, and you can write them off over the life of your loan.
Can You Write Off Closing Costs?
Let’s say your closing costs are $3,000, and your loan is for 30 years. In this scenario, you can deduct $100 a year for 30 years. That may seem like it’s not much, but sometimes people refinance every two or three years. Imagine if you have been writing off these $100 costs every year for five years. That adds up to $500 of the $3,000 of closing costs being written off so far. If, in year five, you decide to refinance again, you get to write off the balance of those closing costs. Make sure you keep track of these costs because they can give you a pretty good tax deduction.
If you’d like some help analyzing how much your closing costs can help your tax exposure, please contact us at Mercer Properties. We would be happy to answer any questions and tell you more about property management in San Diego.