Homeownership comes with several potential tax benefits, from mortgage interest deductions to energy credits. However, the high standard deduction means many homeowners no longer benefit from itemizing. Here’s every available deduction and whether it applies to you.
Overview: Homeowner Tax Benefits
| Tax Benefit | Type | Requires Itemizing? | Who Qualifies |
|---|---|---|---|
| Mortgage interest deduction | Deduction | Yes | Homeowners with mortgage |
| Property tax deduction | Deduction | Yes | All homeowners |
| Mortgage points deduction | Deduction | Yes | Paid points at closing |
| SALT deduction ($10,000 cap) | Deduction | Yes | Those paying state/local taxes |
| Home office deduction | Deduction | No (Schedule C) | Self-employed only |
| Energy efficient home improvement credit | Credit | No | All homeowners making qualifying improvements |
| Residential clean energy credit | Credit | No | Solar, wind, geothermal, battery storage |
| Capital gains exclusion on sale | Exclusion | No | Lived in home 2 of last 5 years |
Mortgage Interest Deduction
Rules and Limits
| Factor | Details |
|---|---|
| Deductible on | Primary residence + one second home |
| Mortgage debt limit | $750,000 (loans originating after Dec 15, 2017) |
| Grandfathered limit | $1,000,000 (loans originating before Dec 16, 2017) |
| HELOC interest | Deductible only if used to buy, build, or substantially improve the home |
| Who reports | Lender sends Form 1098 |
Mortgage Interest Deduction by Loan Size
| Mortgage Balance | Interest Rate | Annual Interest | Tax Savings (at 22%) | Tax Savings (at 24%) |
|---|---|---|---|---|
| $200,000 | 6.5% | $12,800 | $2,816 | $3,072 |
| $300,000 | 6.5% | $19,100 | $4,202 | $4,584 |
| $400,000 | 6.5% | $25,300 | $5,566 | $6,072 |
| $500,000 | 6.5% | $31,400 | $6,908 | $7,536 |
| $750,000 | 6.5% | $46,200 | $10,164 | $11,088 |
First-year interest amounts shown (interest is highest in early years).
Mortgage Interest Over Time
| Loan Year | Annual Interest ($350,000 at 6.5%) | Running Deduction Value |
|---|---|---|
| Year 1 | $22,500 | High |
| Year 5 | $21,100 | High |
| Year 10 | $18,700 | Moderate |
| Year 15 | $15,400 | Moderate |
| Year 20 | $10,800 | Lower |
| Year 25 | $5,300 | Low |
| Year 30 | $600 | Minimal |
Property Tax Deduction (SALT Cap)
| Filing Status | SALT Cap | Includes |
|---|---|---|
| Single | $10,000 | Property tax + state income tax (or state sales tax) |
| Married Filing Jointly | $10,000 | Same (combined) |
| Married Filing Separately | $5,000 | Same (half the cap) |
SALT Cap Impact by State
| State | Avg Property Tax ($400K Home) | Avg State Income Tax ($100K Income) | Total SALT | Over the Cap? |
|---|---|---|---|---|
| New Jersey | $8,920 | $4,200 | $13,120 | Yes (+$3,120) |
| New York | $6,480 | $5,800 | $12,280 | Yes (+$2,280) |
| California | $3,000 | $6,200 | $9,200 | No |
| Illinois | $8,280 | $4,950 | $13,230 | Yes (+$3,230) |
| Texas | $6,720 | $0 | $6,720 | No |
| Florida | $3,440 | $0 | $3,440 | No |
Mortgage Points Deduction
| Type of Points | Deductible? | How |
|---|---|---|
| Points paid at purchase (closing) | Yes | Fully deductible in the year paid |
| Points paid on refinance | Yes | Amortized over life of loan |
| Points paid by seller | Yes | Buyer can deduct (reduces basis) |
Points Deduction Example
| Scenario | Points Paid | Deduction | Tax Savings (22%) |
|---|---|---|---|
| Purchase: 1 point on $400,000 loan | $4,000 | $4,000 in Year 1 | $880 |
| Refinance: 1 point on $300,000 loan (30-year) | $3,000 | $100/year for 30 years | $22/year |
Energy Tax Credits
Energy Efficient Home Improvement Credit (25C)
| Improvement | Credit | Annual Cap |
|---|---|---|
| Heat pumps (air source or geothermal) | 30% of cost | $2,000/year |
| Heat pump water heaters | 30% of cost | $2,000/year |
| Biomass stoves/boilers | 30% of cost | $2,000/year |
| Central air conditioning | 30% of cost | $600 |
| Furnaces and boilers | 30% of cost | $600 |
| Insulation and air sealing | 30% of cost | $1,200 |
| Windows and skylights | 30% of cost | $600 |
| Exterior doors | 30% of cost | $500 ($250 per door) |
| Electrical panel upgrade | 30% of cost | $600 |
| Energy audit | 30% of cost | $150 |
| Annual aggregate cap | — | $3,200 |
Residential Clean Energy Credit (25D)
| System | Credit | Annual Cap |
|---|---|---|
| Solar panels (electric) | 30% of cost | No cap |
| Solar water heating | 30% of cost | No cap |
| Wind turbines | 30% of cost | No cap |
| Geothermal heat pumps | 30% of cost | No cap |
| Battery storage (3+ kWh) | 30% of cost | No cap |
Solar Panel Example
| Solar System Cost | 30% Federal Credit | Net Cost After Credit |
|---|---|---|
| $15,000 | $4,500 | $10,500 |
| $20,000 | $6,000 | $14,000 |
| $25,000 | $7,500 | $17,500 |
| $30,000 | $9,000 | $21,000 |
Credit can be carried forward if it exceeds your tax liability.
Capital Gains Exclusion When Selling
Section 121 Exclusion
| Filing Status | Capital Gains Exclusion | Ownership/Use Test |
|---|---|---|
| Single | Up to $250,000 | Owned and lived in home 2 of past 5 years |
| Married Filing Jointly | Up to $500,000 | Same (at least one spouse meets ownership, both meet use test) |
Example: Calculating Gain on Home Sale
| Item | Amount |
|---|---|
| Sale price | $550,000 |
| Original purchase price | $300,000 |
| + Capital improvements | $50,000 |
| Adjusted basis | $350,000 |
| Capital gain | $200,000 |
| Exclusion (MFJ) | $500,000 |
| Taxable gain | $0 |
What Adds to Your Basis (Reduces Future Gain)
| Adds to Basis | Does NOT Add to Basis |
|---|---|
| Kitchen renovation | Repairs (fixing leaky faucet) |
| Room addition | Routine maintenance |
| New roof | Painting |
| Bathroom remodel | Landscaping maintenance |
| New HVAC system | Cleaning/pest control |
| Finished basement | Home warranty |
| New windows/doors | Homeowners insurance |
Itemizing Threshold Analysis
Should You Itemize? (MFJ, Standard Deduction = $30,000)
| Scenario | Mortgage Interest | Property Tax* | Charity | SALT Total* | Total Itemized | Itemize? |
|---|---|---|---|---|---|---|
| Small mortgage, low-tax state | $6,000 | $3,000 | $2,000 | $5,000 | $13,000 | No |
| Mid mortgage, mid-tax state | $15,000 | $5,000 | $3,000 | $10,000 | $28,000 | No |
| Large mortgage, high-tax state | $25,000 | $8,000 | $5,000 | $10,000** | $40,000 | Yes |
| Mid mortgage + charitable bunching | $15,000 | $5,000 | $15,000 | $10,000 | $40,000 | Yes |
*Property tax and state income tax combined under SALT cap. **SALT capped at $10,000 even though actual SALT may be higher.
Deductions NOT Available to Homeowners
| Expense | Deductible? | Notes |
|---|---|---|
| Homeowners insurance | No | Not deductible (unless home office) |
| HOA fees | No | Not deductible (unless home office or rental) |
| Home repairs/maintenance | No | Not deductible (unless home office or rental) |
| Furniture and appliances | No | Not deductible |
| Landscaping | No | Not deductible |
| Title insurance | No | Added to basis instead |
| Home warranty | No | Not deductible |
| Moving expenses | No | Eliminated for most taxpayers (military exception) |
| Mortgage insurance (PMI) | No | Deduction has expired (may be renewed by Congress) |