Investing in real estate is one of the most efficient means of obtaining long-term wealth. However, if you aren’t utilizing tax deductions related to your rental properties, you’re leaving thousands of dollars behind every year. Knowing how to claim closing cost tax deductions can help maximize your tax savings and bolster your bottom line. 

This guide simplifies claiming deductions on your rental property closing costs, highlights key changes in the 2025 tax law, and supplies you with practical next steps to optimize your savings. By the end of this study, you will know precisely what a deduction is, what needs to be added to your property’s basis, and how to streamline your documentation so you can file your taxes without stress. 

What Are Rental Property Closing Costs? 

Closing costs are the various fees and expenses required to finalize a rental property purchase. These may include appraisal fees, loan origination charges, title insurance, and property taxes. However, not all closing costs are immediately deductible—some must be added to your property’s cost basis for future depreciation. 

Common Rental Property Closing Costs 

Here’s a summary of the usual closing costs for owners of rental properties:

• Loan Origination Fees pay for the lender’s processing and other administrative expenses.
• Mortgage Interest: Usually paid at closing, mortgage interest is one of landlords’ most common deductible costs.
• Title Insurance: Protecting against title defects must be added to the property’s basis. It is insured under title insurance.
• Real Estate Taxes: Frequently, prorated amounts paid at closing qualify as tax-deductible.
• Appraisal and Inspection Fees: These are necessary to complete the sale and are added to your basis instead of automatically deducted.

Knowing which deductible costs can simplify your life, save money, and avoid headaches during tax season.

Tax Benefits of Claiming Closing Costs 

Take rental property owners, for instance; they can maximize their savings from closing cost deductions on a property by:

1. Maximizing Savings: Decreasing income triggers lower taxes.
2. Increasing Cash Flow: Deductions result in incremented savings that allow reinvestment, campaign growth, or new properties.
3. Building Wealth Over Time: By increasing the property’s basis, additional expenses lead to heightened depreciation, minimized capital gains tax, and enhanced overall value when sold.

2025 Tax Updates for Landlords 

The changes for the new tax year affect how rental property owners capture deductions alongside expenses. Here are the most critical points to keep in mind:

• Loan Fees and Interest Deductions: More rigid documentation processes for claiming deductions.
• Increased IRS Guidance: Explains the classification of particular expenses, aiding landlords with tax filings.
• Receipts and Record Keeping Policy: Promotes filing receipts and other records electronically.

Such changes help one remain compliant with the filing while maximizing their deductions.

What Closing Costs Are Immediately Deductible? 

Some closing costs have immediate tax relief, which means they can be deducted within the same year the rental property was purchased.

• Mortgage Interest Paid at Closing: This is deductible if it concerns your rental property’s loan. Review the Closing Disclosure Statement for the amount.
• Real Estate Taxes: Any prorated taxes the seller pays at the closing also qualify for a deduction on the Schedule E tax form.
• Loan Points and Origination Fees: If discount points were paid to lower the interest rate, they are also deductible as mortgage interest in most instances.

Claiming these deductions requires proper documentation, such as closing disclosure forms and receipts.

What Closing Costs Must Be Added to Your Property Basis? 

Some expenses are not immediately deductible, but some increase your property’s cost basis. This results in tax advantages from depreciation and reduced capital gains tax upon property disposal.

Such expenses, which are closing costs and deductible to the property, include:

• Abstract and Title Insurance: This insurance insures the title, which adds to the capital asset’s value and protects the underlying asset.
• Legal Fees, Recording, and Preparation Fees: This is payment for preparing legal documents, such as a contract or deed, and recording them, as well as payment to the attorney for services rendered.
• Survey Fee and Transfer Tax: These expenses increase the ownership of the asset and thereby increase the property’s basis. They cannot be deducted immediately.

Why Adding to Basis Matters 

When you increase your property’s cost basis with these costs, you benefit from more significant depreciation over time, leading to ongoing tax savings and a lower tax burden when selling the property. 

How to Document Closing Costs and Tax Deductions 

To effectively claim closing cost deductions and basis adjustments, follow these steps for organized documentation. 

1. Save Your Closing Disclosure: This document outlines all closing costs and is essential for tax reporting. 
2. Keep Proof of Payment: Hold receipts or cancelled checks to verify expenses. 
3. Use Digital Tax Apps: Tools like Stessa or QuickBooks help track and organize your records for easy retrieval. 

Proper record-keeping ensures accuracy and prepares you in case of an audit. 

Depreciation and Rental Property Tax Strategies 

When you own a rental property, maximizing depreciation reduces your taxable income. 

Distinguishing Building Value from Land Value 

Since the ground is not depreciable, it is crucial to determine the building’s value independently, frequently with the help of your property tax assessment or appraisal report. 

How to Determine Annual Depreciation 

The IRS has a depreciation schedule of 27.5 years for residential rental properties. To get your annual deduction, divide the building’s value (including basis charges) by 27.5. 

Advanced Techniques for Depreciation 

Take into account cost segregation studies to determine whether assets, such as fixtures or appliances, are eligible for shorter depreciation periods and can be deducted more rapidly. 

Checklist for Closing Cost Deductions 

Use this handy checklist to keep track of closing costs and ensure proper tax treatment. 

• Deductible in Year of Purchase:
  • Mortgage interest 
  • Prorated real estate taxes 
  • Discount points and loan origination fees 
• Added to Property Basis:
  • Title insurance 
  • Legal and recording fees 
  • Transfer taxes and surveys 

Step-by-Step Guide to Filing Your Deductions 

1. Use Form Schedule E: Report rental income and related expenses. 
2. Organize Receipts: Ensure all documents are accessible and accurate. 
3. Leverage Tax Software: Tools like TurboTax simplify deduction claims. 
4. Consult with Professionals: A tax advisor specializing in real estate ensures compliance and maximum savings. 

Why Choose Viqsa for Expert Tax Guidance?

Navigating rental property deductions doesn’t have to be overwhelming. At Viqsa, we specialize in helping landlords maximize their closing cost tax deductions while staying compliant with IRS requirements. Whether you’re managing one rental or an entire portfolio, our tailored approach ensures you capture every dollar of tax savings.

Take Control of Your Rental Property Taxes in 2025 

Getting an understanding of and the ability to claim deductions for closing costs is not merely about the dollars you can save; it is about making more educated financial choices with your rental properties. Whether you are a rookie at income tax for rental properties or a veteran landlord, claiming price deductions can significantly increase your ROI. Start by organizing your documents, using tax resources, and starting a maintenance system for record-keeping. If you don’t know where to begin or need help, consult a tax practitioner to ensure you navigate the process and maximize all deductions. Take hold of your rental finances today, rent smarter, and save more.

Contact Viqsa for expert tax advice, and start maximizing your rental property deductions.