Understanding mortgage deductions in 2025 is key for homeowners who want to maximize tax savings. While mortgage interest remains deductible (subject to limits), rules around mortgage points and closing costs can be tricky. Here’s what the IRS allows you to deduct, how the rules work, and what to watch for when filing your 2025 tax return.
What Are Mortgage Points?
Mortgage points, also known as discount points, are prepaid interest that borrowers pay to reduce their loan’s interest rate. In many cases:
- Deductible in full in the year paid if the mortgage is for your primary residence and certain conditions are met.
- Amortized over the life of the loan if the loan is for refinancing or investment property.
Example: If you paid $5,000 in points to lower your interest rate on a new home purchase, you may deduct the full amount in 2025 (subject to IRS rules).
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Closing Costs: What’s Deductible and What’s Not
Many homeowners are surprised to learn that most closing costs are not deductible. Here’s a breakdown:
- Deductible: Points (if qualified), mortgage interest, and certain real estate taxes.
- Not deductible: Title insurance, attorney fees, recording fees, appraisal costs, and transfer taxes.
- Added to basis: Some costs, like title search and survey fees, may be added to your home’s cost basis instead of deducted.
Mortgage Interest Deduction Limits in 2025
The IRS continues to allow mortgage interest deductions on up to $750,000 of acquisition indebtedness ($375,000 if married filing separately). Home equity loan interest may also be deductible if used for home improvement purposes that add value to the property.
Refinancing: How Deductions Change
If you refinance your mortgage:
- Points paid must generally be spread over the life of the loan.
- If part of the loan is used for home improvements, you may deduct a portion of the points immediately.
- Closing costs such as attorney and title fees remain non-deductible.
Tax Planning Tips for Homeowners in 2025
- Keep all closing documents and Form 1098 from your lender.
- If you paid mortgage points, verify whether they qualify for an immediate deduction.
- Consider bunching deductions if you’re near the standard deduction threshold.
- Work with a tax advisor to properly allocate refinancing points.
Example: Homebuyer Deduction in 2025
John buys a primary home in 2025 and pays $8,000 in points at closing. Since the loan is for his principal residence and meets IRS requirements, he deducts the full $8,000 on his 2025 return. His attorney and appraisal fees of $2,500, however, are not deductible.
Key Takeaways
- Mortgage points can be deductible if conditions are met, especially for new home purchases.
- Closing costs are generally not deductible, but some can be added to your home’s basis.
- Refinancing changes the deduction rules for points.
- Homeowners should plan ahead and keep records for maximum tax savings in 2025.
