The HUD-1 Settlement Statement includes all of the charges and credits allocated to you when you close on your new home or refinance your home. These settlement charges can be costly, and items that you are required to pay in addition to the purchase price of a home can be high. The good news is you can claim some of these settlement costs as deductions to reduce your taxable income when you file your federal income tax return.
The lender may require you to submit initial payments for property taxes in advance by setting up an escrow account. State and local property taxes that you have paid into an escrow account would appear on the HUD-1 Settlement Statement. You can deduct these payments on your federal tax returns, but only to the extent they were actually paid to the tax authorities. You cannot deduct any payments that remain in the escrow account for the payment of future tax assessments. If you paid the real estate taxes at closing, and the payments were applied directly to the taxing authorities, those payments are deductible. You cannot deduct any payments paid by the seller toward the current year’s tax assessments.
The HUD-1 Statement will include your initial payment towards the principal balance of the mortgage, mortgage insurance and mortgage interest. You can deduct the mortgage interest payments you paid at closing that are included in the statement. Regardless of whether the mortgage loan is for the purchase of a new home or for a refinance, you can deduct the mortgage interest, as long as it's for your primary residence or second home.
Mortgage Insurance Premiums
Any upfront mortgage insurance premiums you paid at settlement will appear on your HUD-1 Settlement Statement, and you can deduct these payments. The mortgage must be for the purpose of purchasing, building or substantially improving your primary residence or a second home. However, if the mortgage insurance premiums were for a policy issued prior to January 1, 2007, you cannot deduct them.
Home Ownership Expenses
If you choose to itemize your deductions to reduce your taxable income rather than taking the standard deduction, you can claim certain expenses you incurred while maintaining ownership of your home. In addition to items paid during the closing process of your mortgage loan, you can deduct additional payments made during the current year toward property taxes, mortgage insurance premiums and mortgage interest as home ownership expenses. These itemized deductions should appear on Schedule A Form 1040.
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