If I must deduct points over the life of my mortgage, and I have a 30 year mortgage, does this mean that I divide the points paid by 30 and enter that amount on Schedule A?

No, you don't divide the points by 30. If you choose to use the straight-line method, you need to divide the points by the number of payments over the term of the loan and deduct points for a year according to the number of payments made in the year. If the loan ends prematurely, due to payoff or refinance with a different lender, for example, then the remaining points are deducted in that year. Points not included in Form 1098 (PDF) (usually not included on a refinance) should be entered on Form 1040, Schedule A (PDF), Itemized Deductions. For more information, refer to Publication 936, Home Mortgage Interest Deduction; and Tax Topic 504, Home Mortgage Points.

References:

• Publication 936, Home Mortgage Interest Deduction
• Tax Topic 504, Home Mortgage Points
• Form 1040, Schedule A (PDF), Itemized Deductions

I purchased a rental property last year. What closing costs can I deduct?

The only deductible closing costs are those for interest, and deductible real estate taxes. Other settlement fees and closing costs for buying the property become additions to your basis in the property. These basis adjustments include:

• Abstract fees,
• Charges for installing utility services,
• Legal fees,
• Recording fees,
• Surveys,
• Transfer taxes,
• Title insurance, and
• Any amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.
• Those costs that are basis adjustments can be part of your yearly depreciation deduction for the rental property.

For additional information, refer to Publication 527, Residential Rental Property, Publication 17, Your Individual Income Tax Guide, and Publication 535, Business Expenses. Several closing costs cannot be deducted and are not added to basis. Please see Publication 527 page 12 for more information.

References:

• Publication 527, Residential Rental Property
• Publication 17, Your Individual Income Tax Guide
• Publication 535, Business Expenses