Why You Should Keep Your Closing Disclosure for Tax Filing

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Norah Tanner with Houzd Mortgage is back to explain how your Closing Disclosure can help you at tax time.

When you purchase a home or refinance your mortgage, one of the most important documents you receive is the Closing Disclosure. This document details the final terms of your loan, including any points paid at closing. Keeping this document is crucial for tax filing, as mortgage points may be tax-deductible, potentially saving you money.

What Are Mortgage Points?

Mortgage points, also known as discount points, are fees paid upfront to lower your mortgage interest rate. One point typically costs 1% of the loan amount and reduces your interest rate, making it an attractive option for buyers planning to stay in their home long-term.

How Mortgage Points Affect Your Taxes

The IRS allows you to deduct mortgage points as part of your home acquisition or refinancing costs, but there are specific rules to qualify for the deduction.

  • For a Home Purchase: Points paid on a primary residence are generally deductible in the year they were paid.

  • For a Refinance: Points must typically be amortized (spread out) over the life of the loan rather than deducted all at once. However, if you refinance again or pay off the loan early, any remaining points may be deducted in that year.

Why Your Closing Disclosure Matters

The Closing Disclosure lists the total amount of points paid at closing under "Loan Costs" in the Origination Charges section. Keeping this document helps ensure:

  • Accurate Tax Deductions – You have proof of the points paid for IRS reporting.

  • Easy Verification – If audited, you have documentation showing the fees paid.

  • Future Refinancing Benefits – If you refinance, you may deduct the remaining points from the previous loan.

How to Use Your Closing Disclosure at Tax Time

  • Review Your Closing Disclosure – Locate the points paid section.

  • Check IRS Requirements – Ensure your points qualify for a deduction based on IRS rules.

  • Report on Schedule A (Form 1040) – If you itemize deductions, enter the deductible points under mortgage interest.

  • Keep the Document for Records – Store the Closing Disclosure with your tax documents for at least three years in case of an audit.

Final Thoughts

Your Closing Disclosure is more than just a loan document—it can help you maximize your tax benefits. By keeping a copy and understanding the tax rules around mortgage points, you can ensure you’re taking advantage of every deduction available.