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Tax Talk with George Saenz

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Deducting closing costs

Dear Tax Talk:
If we refinance a rental property loan, are the closing costs tax deductible on Schedule E?

Dear Jamie:
Closing costs paid on the refinancing of a rental property are tax deductible on Schedule E. However, the costs have to be deducted annually over the term of the new mortgage.

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That means if you pay, for example, $1,500 in closing costs on a 15-year mortgage, you can deduct $100 annually for closing costs. If you pay off the loan early or refinance, you can deduct the balance of the costs in that year. You may be better off paying a higher interest rate in exchange for eliminating points on closing.

The same holds true for closing costs paid on the refinancing of your home.

-- Posted: May 14, 2002

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See Also
Maximizing a refi's tax deductions
Depreciating a rental property

Avoiding capital gains on a rental property sale

More tax adviser stories


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