The Basics

• The HUD-1 itemizes all costs and credits associated with the sale transaction and loan acquisition needed to close, including escrow, title, loan origination fees, pre-paid taxes and mortgage interest. Generally, these closing costs are described as either recurring or nonrecurring depending on whether they are the first of a series of payments or one-time fees. The HUD-1 lists the seller and buyer's portion of charges. It is also used in refinance transactions. You will need the HUD-1 when doing your taxes for the year in which you acquire the mortgage.
  
  

Mortgage Interest

• Home mortgage interest is any interest you pay on a loan secured by a primary or secondary residence you own. Mortgage interest is tax-deductible and appears in Section 900 of the HUD-1 as a pre-paid expense. The lender requires you to pay in advance the daily interest charges that will accrue until your first real payment on the mortgage is due -- that is, the first day of the following month. The total amount for the specified number of days' worth of interest and the dates you pre-pay for, are provided on Line 901 of the HUD-1.
  
  

Types

• The HUD-1 provides for certain types of loans tied to the home that may be used to deduct mortgage interest. These include purchase money to acquire the home or new debt not used for purchase, such as a second mortgage, a line of credit or home equity loan, according to the IRS.
  
  You can deduct all of the mortgage interest on your home that falls into one or more of three categories. You can deduct on grandfathered debt -- mortgages originated on or before October 13, 1987; mortgages taken out after this date used to buy, build or improve; or if not used for these purposes, mortgages totaling no more than $100,000 or the fair market value of your home.
  
  

Considerations

• Points are the charges paid to acquire the mortgage, such as origination fees and loan discount points for the interest rate you choose. Points are found in Section 800 of the HUD-1. You generally are not able to deduct the full amount of points in the year paid, according to the IRS.
  
  Points on the HUD-1 of a refinance are generally not tax-deductible in full for the year paid. Instead, they typically must be deducted over the life of the loan.