Owning a home opens the door to several federal tax breaks, but most of them only pay off if you itemize. The main tax deductions for homeowners are mortgage interest, state and local property taxes (subject to the SALT cap), mortgage insurance premiums, and points paid on a home loan. When you sell, a separate rule lets you exclude up to $250,000 of profit from taxable income, or $500,000 on a joint return. For 2026, several of these rules changed under the One Big Beautiful Bill Act.
Before any homeowner deduction helps you, your itemized total has to clear the standard deduction. For 2026, the standard deduction is $32,200 for married couples filing jointly, $16,100 for single filers and married filing separately, and $24,150 for heads of household.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 If your mortgage interest, property taxes, and other itemized expenses together fall short of that number, the standard deduction wins and none of the homeowner write-ups below change your tax bill.
Mortgage Interest
You can deduct the interest paid on a mortgage used to buy, build, or substantially improve your main home or a second home. For loans taken out after December 15, 2017, the deduction applies to interest on the first $750,000 of mortgage debt ($375,000 if married filing separately). Older mortgages still follow the earlier $1,000,000 limit ($500,000 if married filing separately).2Office of the Law Revision Counsel. 26 USC 163 – Interest Both limits are now permanent under the One Big Beautiful Bill Act.
Your lender reports the year’s interest on Form 1098. If your loan balance is above the $750,000 ceiling, you can’t just copy the Form 1098 figure onto Schedule A. You have to calculate the deductible slice yourself.3Internal Revenue Service. Instructions for Form 1098
Home equity loans and lines of credit are treated more strictly. The interest is deductible only if you used the borrowed money to buy, build, or substantially improve the home that secures the loan. Interest on a home equity loan used to pay off credit cards, cover tuition, or take a vacation isn’t deductible.4Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
Reverse mortgages catch a lot of retirees off guard. Because you don’t make monthly payments, interest accrues but isn’t deductible until you actually pay it, which usually happens when the loan is paid off in full. Even then, the deduction may be limited because a reverse mortgage is generally treated as home equity debt rather than acquisition debt.5Internal Revenue Service. For Senior Taxpayers
Property Taxes and the SALT Cap
State and local real estate taxes on your home are deductible in the year you pay them, but they share space with your other state and local taxes under a single cap. Starting in 2025, that SALT cap rose from $10,000 to $40,000 for most filers ($20,000 for married filing separately), and both figures increase by 1% each year through 2029.6Internal Revenue Service. Topic No. 503, Deductible Taxes
The higher cap phases out at higher incomes. Once your modified adjusted gross income passes $500,000 ($250,000 for married filing separately), the cap is reduced by 30% of the excess. It can never drop below $10,000 ($5,000 for married filing separately). At around $600,000 of modified AGI, the cap reverts fully to $10,000.
Remember that the cap covers your combined state income or sales taxes plus property taxes. A high state income tax bill can leave less room to deduct property taxes even when the cap looks generous on paper.
Two other things trip people up. When you buy or sell during the year, the property taxes get split between buyer and seller based on how many days each owned the home. You deduct only the part covering your ownership, no matter who wrote the check at closing. And special assessments for a new sidewalk, sewer line, or other improvement that benefits only your neighborhood are generally not deductible as property tax. Assessments for community-wide maintenance or repairs can qualify.
Mortgage Insurance Premiums
The deduction for mortgage insurance premiums, which had expired and been extended repeatedly over the years, was made permanent by the One Big Beautiful Bill Act starting with the 2026 tax year. If you pay private mortgage insurance (PMI) or a government mortgage insurance premium such as FHA or USDA insurance, those premiums are again deductible as an itemized expense. This matters most for homeowners who put down less than 20% and are still carrying insurance on their loan.
Points
Points you pay when taking out a mortgage to buy or improve your main home are generally deductible in full in the year you pay them, but several conditions apply. Paying points has to be an established practice in your area, the amount can’t exceed what’s typical for your market, and the points must be clearly shown on your closing disclosure. You also need to have brought enough cash to closing to cover the points, separate from the borrowed funds.7Internal Revenue Service. Topic No. 504, Home Mortgage Points
Refinance points work differently. Instead of deducting the full amount up front, you spread it evenly across the life of the new loan. Pay $3,000 in points on a 30-year refinance and you deduct $100 a year. If you pay off the refinanced loan early, you can deduct all remaining unamortized points in that final year.
What You Cannot Deduct
Plenty of ordinary homeownership costs simply don’t qualify. Mortgage principal payments, homeowners insurance premiums, utility bills, and routine maintenance or repairs are all outside the deduction. HOA and condo association dues on a personal residence are non-deductible as well. These expenses also don’t add to your home’s tax basis, with one exception: a repair that crosses into a capital improvement, meaning it adds value, extends the home’s useful life, or adapts it to a new use.
Home Office Deduction
The home office deduction is available to self-employed people who use part of their home exclusively and regularly for business. W-2 employees cannot claim it, even if they work from home full time. That restriction, originally a temporary Tax Cuts and Jobs Act provision, is now permanent.
To qualify, the office must be your principal place of business, or the place you handle the management and administrative side of the business if you work at multiple locations. The space has to be used only for business, not a guest room that doubles as an office.
There are two ways to calculate the deduction:
- Simplified method: $5 per square foot of home office space, capped at 300 square feet, for a maximum of $1,500 per year. No depreciation math, no tracking utility bills.8Internal Revenue Service. Simplified Option for Home Office Deduction
- Actual expense method: figure the percentage of your home used for business, then apply that percentage to your actual home expenses, including mortgage interest, insurance, utilities, repairs, and depreciation. Requires Form 8829 and more recordkeeping, but often produces a larger deduction.9Internal Revenue Service. Instructions for Form 8829 – Expenses for Business Use of Your Home
One trap with the actual expense method: any depreciation you claim on the home office portion of your house is recaptured at a maximum 25% rate when you sell. The Section 121 exclusion (below) does not shelter depreciation recapture. Many self-employed homeowners don’t think about this until the closing statement lands on their desk.
Casualty Losses
If your home is damaged or destroyed, you can deduct the loss on your federal return only when the damage occurred in a federally declared disaster area.10Internal Revenue Service. Topic No. 515, Casualty, Disaster, and Theft Losses A house fire or burst pipe that isn’t part of a federal disaster declaration doesn’t qualify. That restriction is now permanent.
Even when the loss does qualify, two floors cut into it. Each separate casualty event is reduced by $100 (or $500 for certain qualified disaster losses), and the total of all your remaining casualty losses for the year is then reduced by 10% of your adjusted gross income.11Internal Revenue Service. Form 4684 – Casualties and Thefts Only what survives both floors is deductible on Schedule A. If your AGI is $150,000, the first $15,000 of your net loss produces no deduction at all.
Selling Your Home: The Section 121 Exclusion
The biggest single tax break for most homeowners comes at sale. If you sell your main home at a profit, you can exclude up to $250,000 of that gain from your income, or up to $500,000 on a joint return with your spouse.12Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence For a lot of sellers that means paying zero federal tax on the sale.
Ownership and Use Tests
To qualify for the full exclusion, you have to pass two tests within the five-year window ending on the sale date. You must have owned the home for at least two years during that period, and you must have lived in it as your main home for at least two years during the same period. The two years don’t need to be consecutive, and the ownership period doesn’t have to overlap perfectly with the use period.
For joint filers claiming the $500,000 exclusion, either spouse can meet the ownership test, but both spouses must independently meet the use test. Neither spouse can have used the exclusion on another home sale within the two years before the current one.13Internal Revenue Service. Topic No. 701, Sale of Your Home
A surviving spouse who hasn’t remarried can still claim the full $500,000 exclusion if the home is sold within two years of the spouse’s death. The deceased spouse’s time owning and using the home counts toward the two-year requirements. After that two-year window closes, the survivor reverts to the $250,000 single-filer exclusion.
Partial Exclusion for Short-Term Sales
Sell before hitting the two-year mark and you may still get a reduced exclusion if the sale was driven by a job change, health issue, or other unforeseen circumstance. The partial exclusion equals the fraction of the two-year period you did own and use the home, applied to the $250,000 or $500,000 maximum.
The IRS uses specific safe harbors. A qualifying job change means your new workplace is at least 50 miles farther from the home than your old one was. A health-related sale requires a physician’s recommendation to move for diagnosis, treatment, or mitigation of a disease or illness. Recognized unforeseen circumstances include involuntary job loss with eligibility for unemployment benefits, divorce or legal separation, multiple births from the same pregnancy, and natural disasters or acts of terrorism that damage the home.
Non-Qualified Use and Depreciation Recapture
If you used the home for something other than your primary residence during part of your ownership (renting it out, for example), a slice of the gain tied to that non-qualified use won’t qualify for the exclusion. The IRS divides your total non-qualified use time by your total ownership period and applies that ratio to your gain. That portion stays taxable as capital gain even if the rest is fully excluded.
Depreciation recapture is a separate hit. If you rented the home and claimed depreciation, the depreciation you claimed is taxed at a maximum rate of 25% when you sell, no matter how well you otherwise qualify for the Section 121 exclusion. The exclusion does not cover depreciation recapture.
Your Home’s Basis
Your adjusted basis determines how much taxable gain you actually have when you sell. The higher the basis, the smaller the gain, and the more likely the $250,000 or $500,000 exclusion covers it entirely.
Your starting basis is usually the purchase price plus certain settlement costs that aren’t deductible elsewhere, such as title insurance, recording fees, transfer taxes, and legal fees tied to the purchase. Costs you already deducted, like prorated property taxes or prepaid interest, don’t get added to basis.
Capital improvements raise the basis over time. A new roof, kitchen remodel, added bedroom, or central air installation qualifies. Routine repairs and maintenance don’t. Fixing a leaky faucet keeps the house running; replacing all the plumbing changes the basis.
The math matters at sale. Buy a home for $300,000, put $80,000 into qualifying improvements, and your adjusted basis is $380,000. Sell for $600,000 and your gain is $220,000, inside the $250,000 exclusion. Without those documented improvements the gain would be $300,000, and $50,000 would be taxable. Keep every receipt, contract, and permit.
Inherited Homes
Inherit a home and your basis is generally the fair market value on the date the previous owner died, not what they originally paid.14Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent This stepped-up basis can wipe out most of the built-in gain if you sell shortly after inheriting. If the executor filed an estate tax return using an alternate valuation date six months after death, the basis is measured at that later date. Inherited property is automatically treated as held long-term for capital gains purposes.
Gifted Homes
Receive a home as a gift and your basis is generally the same as the donor’s basis at the time of the gift.15Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust If a parent paid $100,000 for a home decades ago and gifted it to you when it was worth $400,000, your basis is $100,000, and you inherit the built-in gain. Any gift tax the donor paid on the transfer can bump your basis up somewhat but won’t bring it all the way to fair market value. There’s a narrow exception for losses: if the fair market value at the time of the gift was below the donor’s basis, your basis for calculating a loss on a later sale is that lower fair market value.
Records to Keep
The IRS puts the burden of proof on you for every deduction and basis figure. Keep annual deduction records (Form 1098, property tax receipts, closing disclosures showing points) for at least three years after you file the return claiming the deduction.16Internal Revenue Service. How Long Should I Keep Records
Basis records need to stick around much longer. Your original settlement statement, every capital improvement receipt, and any records of casualty losses or depreciation claimed should be kept for as long as you own the home, plus three years after the return for the year you sell. In practice, that’s effectively indefinite. Losing documentation of a $40,000 renovation done fifteen years ago means losing $40,000 of basis when you sell.
When you do sell, the settlement agent or closing attorney files Form 1099-S reporting the gross sale proceeds.17Internal Revenue Service. Instructions for Form 1099-S That form shows the full sale price without your basis or the Section 121 exclusion. If your gain is fully covered by the exclusion, you generally don’t have to report the sale, but be ready to demonstrate eligibility if the IRS asks. If your gain exceeds the exclusion, the taxable portion goes on Form 8949 and flows to Schedule D.18Internal Revenue Service. About Form 8949, Sales and Other Dispositions of Capital Assets