If you bought or sold a home, one of the most important documents you received at closing was your Settlement Statement. It may not be the most exciting paperwork from your transaction — but when it comes time to file your tax return, it becomes one of the most important.

What Is a Settlement Statement?

A Settlement Statement is the final financial summary of a real estate transaction. It itemizes every dollar that changed hands between buyer and seller at closing. Today, most buyers and sellers receive what’s called a Closing Disclosure, which replaced the older HUD-1 Settlement Statement for most residential transactions.

Both documents serve the same purpose:

They show:

• Purchase price or sale price
• Loan amount
• Commissions paid
• Escrow and title fees
• Recording fees
• Property tax prorations
• Prepaid interest
• Loan points (if applicable)
• Credits to buyer or seller

This document is the official record of the transaction’s financial details. Reading one can be a bit confusing or overwhelming. This video walks you through a Settlement Statement and where to find key information.

WATCH VIDEO HERE

Why Settlement Statements Matter for Taxes

The Internal Revenue Service does not automatically receive all the cost details shown on your settlement statement — but your tax return depends on them being reported correctly. 

Here’s why the document is critical.

For Sellers: Determining Capital Gains or Losses

Capital gain/loss is the profit or loss you incur when selling an asset and is roughly calculated in the following way:

• Sale Price
  
  
• Less "Adjusted Basis", which is the sum of:
  • Purchase Price
  • Purchase Closing Costs
  • Costs of Sale (Closings Costs, Commissions, Taxes)
  • Capital Improvements
    
    
    
• Plus Depreciation Recapture (if property was an investment)
  
  
• Capital Gain (Or Loss)

Your settlement statement provides several key points of data for documenting your adjusted basis shows:

• Gross sale price
• Real estate commissions
• Real Estate Excise Tax
• Title Insurance
• Escrow & Signing Fees
• Recording Fees

Many selling expenses show on your settlement statement will help reduce your taxable gain when you complete your tax return. For more information please refer to IRS guidance: https://www.irs.gov/publications/p523

$250,000/$500,000 CAPITAL GAIN EXCLUSION WHEN SELLING PRINCIPAL RESIDENCE

If the property you sold was your principal residence for 2 or more years within the last 5 years, you may qualify to exclude up to $250k (single) or $500k (married filing jointly) of capital gains. To learn more about the Section 121 Exclusion, please read our article here.

 Received A Form 1099-S From Escrow/Title?

If you received Form 1099-S, from the escrow or title company after the closing of the sale, or during the first months of the following year in preparation for tax season, the sale must be reported on your taxes — even if you qualify for the Section 121 exclusion (up to $250,000 single / $500,000 married filing jointly). If you fail to report the sale and show your qualification of exclusion the IRS may assume the entire sale price is taxable (ask us how we know).

For Buyers: Mortgage Interest & Points

If you purchased a home your settlement statement shows:

• Mortgage interest paid at closing
• Prepaid interest
• Loan discount points
• Property taxes paid at closing

These amounts may affect your deductions when filing your taxes for the year of purchase.  In addition, some of the closing costs may be able to be used to lower your adjusted basis when you sell your property.

Mortgage Interest

Interest paid in 2025 may be deductible if you itemize. Click HERE to learn more about Mortgage Interest deductions for taxes, and refer to IRS Publication 936 (https://www.irs.gov/publications/p936)

Mortgage Points

Points paid at closing may:

• Be fully deductible (if IRS requirements are met), or
• Be deducted over the life of the loan

Your Closing Disclosure lists these clearly under Loan Costs.

Property Tax Reporting

Your settlement statement also shows:

• Property tax prorations
• Taxes paid at closing
  
  

Only property taxes actually paid in the year you purchased count for your return.

This matters especially for:

• Buyers who prepaid taxes
• Sellers who paid prorated taxes through escrow
  
  

Click HERE to read more about Property Taxes and how they are accounted for on your federal taxes, and refer to IRS Schedule A instructions: https://www.irs.gov/forms-pubs/about-schedule-a-form-1040

Basis Documentation for the Future

Even if your transaction does not create a tax impact this year, your settlement statement becomes part of your permanent records.

Why?

Because when you eventually sell:

• Your original purchase price
• Certain acquisition costs
• Certain improvements

may affect your future capital gain calculation.

Losing this document can make future tax reporting more complicated than it needs to be.

What Should You Do Now?

If you bought or sold property:

1. Locate your Closing Disclosure or Settlement Statement.
2. Save a digital copy in a secure folder.
3. Provide it to your CPA when preparing your tax return.
4. Keep it long-term for future sale documentation.
   
   

Final Thought

Real estate transactions involve large financial numbers. Small line items on your settlement statement can meaningfully impact:

• Taxable gain
• Deductible mortgage interest
• Deductible property taxes
• Deductible points
  
  

When filing, this document is one of the most important pieces of paperwork you’ll use.

If you ever need a duplicate copy or have questions about the numbers on your closing statement, our team is happy to help walk through it with you.