Some of the biggest costs at settlement are tax deductible in the year the home was bought. The loan fee or points, even if paid by the seller, as well as the pro-rated mortgage interest and property taxes, are tax deductions.

Most of the rest of the closing costs are not deductible, but can be added to the home's purchase price to increase the basis of the property. These costs include attorney and recording fees, transfer taxes and termite inspection. The homeowner's property insurance is a personal expense, so it's not tax deductible and cannot be added to the basis of the home.