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Taxes for buyers and sellers · IRS Publication 936The mortgage interest deduction in the year you buy or sell a home

IRS Publication 936 (for 2025 returns) sets out how home mortgage interest works around a sale or purchase. When you sell, you can deduct the mortgage interest paid up to, but not including, the date of the sale – including the interest for the final days of the month that shows on the settlement statement; in the IRS example, $1,220 paid through April plus $50 of interest for six days in May on the settlement sheet gives a $1,270 deduction. When you buy, home mortgage interest is deductible on the first $750,000 of debt ($375,000 married filing separately), or $1 million for debt taken out before December 16, 2017. Interest paid in advance for a period beyond the end of the tax year must be spread over the years it covers (points have their own rule). If you move in before final settlement, what you pay for that period is rent, not interest – even if the settlement papers call it interest. If you pay interest to the person you bought the home from, you report their name, address and taxpayer identification number on Schedule A, line 8b, and each side must give the other its TIN (a Form W-9 works), or face a $50 penalty for each failure. For 2025 returns the itemized deduction for mortgage insurance premiums has expired. The deduction helps only if you itemize.

When you sell

  1. Up to the sale date

    Deduct interest paid up to, but not including, the date of sale.

  2. Settlement statement

    The interest for the last days of the month shown at closing counts too.

  3. Prepayment penalty

    Deductible as mortgage interest if it is not for a specific service.

When you buy

  1. $750,000 limit

    Interest on the first $750,000 of debt ($375,000 married filing separately); $1 million for debt before December 16, 2017.

  2. Prepaid interest

    Spread over the years it covers (points follow their own rule).

  3. Early move-in

    Payments for living there before final settlement are rent, not interest.

  4. Seller-financed

    Report the seller's name, address and TIN on Schedule A line 8b; exchange TINs (Form W-9).

  5. Mortgage insurance

    For 2025 returns, the itemized deduction has expired.

What the TC can do

  • Send buyers and sellers the final settlement statement right after closing – their tax preparer will ask for it.
  • On an early move-in, note that the payments are rent – the temporary lease, not the loan, governs them.
  • On a seller-financed sale, plan a secure way for buyer and seller to exchange W-9s.

Questions buyers and sellers ask

Can I deduct mortgage interest for the month I sold my house?

Yes, up to but not including the date of sale – including the interest shown on the settlement statement for the final days (IRS Publication 936).

Is the interest I paid at closing deductible?

Interest that is home mortgage interest for the year is deductible if you itemize; interest paid in advance for a period beyond the end of the tax year is spread over the years it covers. Points follow separate rules.

Are my payments deductible if I moved in before closing?

No. Payments for living in the house before final settlement are rent, not mortgage interest, even if the settlement papers call them interest.

Related guides

In ClosingCode the Closing Disclosure / settlement statement is a standard document on every deal – easy to find when a tax preparer asks for it in April.

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Source: IRS Publication 936, Home Mortgage Interest Deduction, for use in preparing 2025 returns (irs.gov/pub/irs-pdf/p936.pdf, read October 26, 2026).

General information, not tax advice. The deduction only helps if you itemize. ClosingCode is software; it is not a tax preparer or CPA. This guide is not a substitute for the advice or services of an attorney.