Question:

Are mortgage closing costs tax deductible for investment properties?

Answer:

Yes, some mortgage closing costs are tax deductible.

Tax treatment of mortgage closing costs on investment properties is different from tax treatment of closing costs on primary residences. Closing costs on investment properties will vary from 1% to 4-5% of loan value and some will be deductible as expense.

Some closing cost items will be depreciated, such as the cost of personal property and the investment purchase less the value of the land. Others will be fully deductible, such as city and county taxes and most assessment types except for the amount due by the seller for those.

However, the loan origination fee, which is a substantial part of the loan closing costs, is not tax-deducible or depreciable and will be amortized in full through the lifetime of the loan.

The appraisal and credit report fees get depreciated, while the insurance application fee and the assumption fee have to be amortized. The overall interest on the loan will be deductible when it is fully paid.

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