Are Lender Fees Tax Deductible?

by Kristine Tucker ; Updated July 27, 2017

You are required to pay lender fees as part of the closing costs when you purchase a home with a bank loan or a mortgage. According to the Internal Revenue Service, lender fees are generally not tax-deductible unless they include mortgage interest, property tax or discount points. These deductible expenses must be itemized on Schedule A of your federal tax return.

Lender Fees

Administrative fees charged by a lender to approve a home mortgage are not tax-deductible. Lender fees cover the cost of services provided by the bank or mortgage company. Lender fees, underwriting expenses, appraisals, home inspections and credit reports are required by most lenders, but they are not tax-deductible expenses.

Prepaid Interest

Prepaid mortgage interest is a tax-deductible expense. You are required to prepay mortgage interest for the days you legally own the home unless you close on the first day of the month. Even though the interest is paid as part of your closing costs, it is tax-deductible and can be claimed on your federal tax return.

Property Taxes

Prorated property taxes are tax-deductible. According to the IRS, you are required to pay prorated property taxes when the seller’s property tax payment extends into the month you take legal ownership of the house. Your lender only charges you for prorated taxes during the days you own the home. You can only take the prorated tax deduction during the year that you bought the house.

Discount Points

Discount points, often referred to as mortgage points, are tax-deductible. Points are based on a percentage of the loan amount, and they must be paid to the lender at closing. You can purchase discount points to reduce the interest rate on the loan. The total amount paid for discount points can only be deducted on your federal tax return the same year you purchased the property.

About the Author

As curriculum developer and educator, Kristine Tucker has enjoyed the plethora of English assignments she's read (and graded!) over the years. Her experiences as vice-president of an energy consulting firm have given her the opportunity to explore business writing and HR. Tucker has a BA and holds Ohio teaching credentials.