--- title: Are Refinancing Closing Costs Tax Deductible on Rental Property? description: The closing costs when refinancing a mortgage can be deducted from rental property income, but there are some restrictions and conditions to consider. image: https://www.realized1031.com/hubfs/Images/photo/abstract/tax-filing-doc-IS-874826692.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Are Refinancing Closing Costs Tax Deductible on Rental Property? Posted Nov 11, 2021 ![tax-filing-doc-IS-874826692](https://www.realized1031.com/hs-fs/hubfs/Images/photo/abstract/tax-filing-doc-IS-874826692.jpg?width=750&height=392&name=tax-filing-doc-IS-874826692.jpg) Rental property investors may wonder if the closing costs associated with refinancing their rental properties are tax deductible. While it may seem like a simple question, certain [closing costs](https://www.realized1031.com/glossary/closing-costs) must be disclosed on your tax return. There are some factors that determine whether the closing costs on your refinanced mortgage are tax deductible. ### What is a Refinance Tax Deduction? Deductions are expenses incurred over a year that you can claim at tax time to lessen your financial burden. Much like when you first purchase a home, there are refinance tax deductions you can claim after refinancing the mortgage loan on your rental property. ### How to Calculate Refinancing Closing Costs The average closing costs on a home are between [3% to 6% of your mortgage’s principal](https://www.federalreserve.gov/pubs/refinancings/#cost) amount. Closing costs on refinancing can include appraisal fees, attorney fees, title insurance, and credit report fees. To lower your interest rate, you may also have to deal with additional expenses to lower your interest rate, such as discount points. A discount point, also known as a mortgage point, is a fee paid before purchasing the property to lower the loan’s interest rate. One discount point is equal to 1% of the mortgage amount. Refinancing costs can be impacted by your location, the property value, and the terms of your new or old lender. Though it typically makes sense to refinance when your new interest rate is low enough to justify paying for these closing costs, you can also aim to recoup some of these expenses on your taxes if you’re refinancing a rental property. ### Are Refinancing Closing Costs Tax Deductible? If you choose to refinance your property, the question remains whether the refinancing closing costs are tax deductible. The answer depends on what type of property you are refinancing. ### Primary Property For a primary residential property, you can deduct closing costs if they fall under the [category of real estate taxes or mortgage interest.](https://www.irs.gov/pub/irs-news/at-03-32.pdf) You can deduct mortgage premiums and mortgage points over the number of payments in the loan span. If there are any service fees and other non-interest fees, such as appraisals or title insurance, these closing costs cannot be deducted from your taxes. Your adjusted gross income also affects the number of deductions you can take for your refinanced primary residence. ### Rental Property Your rental property is considered a [business property](https://www.irs.gov/publications/p946#en_US_2020_publink1000107378) in which you generate rental income. You may deduct property taxes and the mortgage interest, but the remaining closing costs cannot be deducted. Instead, they are added to the [cost basis of your rental property.](https://www.realized1031.com/blog/how-to-calculate-cost-basis-for-rental-property) This is then depreciated over a set amount of time, typically [27.5 years.](https://www.realized1031.com/blog/are-refinance-closing-costs-tax-deductible-on-rental-property) ### Refinance Tax Deductions You May Qualify For You may qualify for several deductions in the year you refinance the mortgage on your rental property and beyond. Talk to an accountant about your eligibility for the following deductions if you are unsure: - Mortgage interest deduction - Discount points deduction (if purchased at closing to reduce your interest rate) - Closing costs The closing costs that are tax deductible on your rental property may include your attorney fees, state-required inspection fees, other legal fees, appraisal fees, and even your refinance application fee where applicable. Insurance and repair costs for the rental property are also typically tax deductible. ### If You're Unsure, Seek Support If you’re unsure whether your expenses are tax deductible, it’s critical that you consult your accountant or call the IRS TeleTax line at 1-800-829-4477 to listen to recordings covering various tax-related topics. If you make an error when filing your taxes and pay the IRS less than you owe, you can be charged a late penalty on the outstanding amount. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 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What is a Refinance Tax Deduction? Deductions are expenses incurred over a year that you can claim at tax time to lessen your financial burden. Much like when you first purchase a home, there are refinance tax deductions you can claim after refinancing the mortgage loan on your rental property. How to Calculate Refinancing Closing Costs The average closing costs on a home are between 3% to 6% of your mortgage’s principal amount. Closing costs on refinancing can include appraisal fees, attorney fees, title insurance, and credit report fees. To lower your interest rate, you may also have to deal with additional expenses to lower your interest rate, such as discount points. A discount point, also known as a mortgage point, is a fee paid before purchasing the property to lower the loan’s interest rate. One discount point is equal to 1% of the mortgage amount. Refinancing costs can be impacted by your location, the property value, and the terms of your new or old lender. Though it typically makes sense to refinance when your new interest rate is low enough to justify paying for these closing costs, you can also aim to recoup some of these expenses on your taxes if you’re refinancing a rental property. Are Refinancing Closing Costs Tax Deductible? If you choose to refinance your property, the question remains whether the refinancing closing costs are tax deductible. The answer depends on what type of property you are refinancing. Primary Property For a primary residential property, you can deduct closing costs if they fall under the category of real estate taxes or mortgage interest. You can deduct mortgage premiums and mortgage points over the number of payments in the loan span. If there are any service fees and other non-interest fees, such as appraisals or title insurance, these closing costs cannot be deducted from your taxes. Your adjusted gross income also affects the number of deductions you can take for your refinanced primary residence. Rental Property Your rental property is considered a business property in which you generate rental income. You may deduct property taxes and the mortgage interest, but the remaining closing costs cannot be deducted. Instead, they are added to the cost basis of your rental property. This is then depreciated over a set amount of time, typically 27.5 years. Refinance Tax Deductions You May Qualify For You may qualify for several deductions in the year you refinance the mortgage on your rental property and beyond. Talk to an accountant about your eligibility for the following deductions if you are unsure: Mortgage interest deduction Discount points deduction (if purchased at closing to reduce your interest rate) Closing costs The closing costs that are tax deductible on your rental property may include your attorney fees, state-required inspection fees, other legal fees, appraisal fees, and even your refinance application fee where applicable. Insurance and repair costs for the rental property are also typically tax deductible. If You're Unsure, Seek Support If you’re unsure whether your expenses are tax deductible, it’s critical that you consult your accountant or call the IRS TeleTax line at 1-800-829-4477 to listen to recordings covering various tax-related topics. If you make an error when filing your taxes and pay the IRS less than you owe, you can be charged a late penalty on the outstanding amount. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. 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