Tax benefits of homeownership: Deductions you might miss

Updated July 2026 · 11-minute read · Reviewed by a CFP® practitioner

Owning a home comes with significant tax advantages that renters don't get. From mortgage interest deductions to property tax breaks, homeownership can save you thousands on your tax bill each year. Here's a complete guide to the tax benefits you might be missing.

Benefit #1: Mortgage interest deduction

The mortgage interest deduction is the biggest tax benefit of homeownership. You can deduct the interest you pay on your mortgage each year, which can be thousands of dollars, especially in the early years of your loan.

How much can you deduct?

• Loans taken out after Dec 15, 2017: Deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately)
• Loans taken out before Dec 16, 2017: Deduct interest on up to $1 million of mortgage debt ($500,000 if married filing separately)

Real-world example

You bought a $500,000 home with 20% down ($100,000). Your loan is $400,000 at 6.75% interest. In your first year, you'll pay about $26,800 in interest.

• Mortgage interest paid: $26,800
• Your tax bracket: 24%
• Tax savings: $26,800 × 24% = $6,432

You save $6,432 on your federal taxes, that's a car payment or a nice vacation.

Important notes

• You must itemize deductions. The mortgage interest deduction is only available if you itemize on Schedule A. If you take the standard deduction ($14,600 single, $29,200 married in 2026), you can't deduct mortgage interest.
• Interest decreases over time. In the early years of your mortgage, most of your payment goes toward interest. As you pay down the loan, more goes toward principal and less toward interest, so your deduction shrinks over time.
• Second homes qualify. You can deduct mortgage interest on a second home, as long as the total debt doesn't exceed the limits above.

Benefit #2: Property tax deduction (SALT deduction)

You can deduct state and local property taxes on your federal tax return. This is part of the SALT (State and Local Tax) deduction, which also includes state income taxes or sales taxes.

SALT deduction limits (2026)

• Single filers: Up to $10,000 in SALT deductions
• Married filing jointly: Up to $10,000 in SALT deductions
• Married filing separately: Up to $5,000 each

How it works

You can deduct a combination of:

• State and local property taxes
• State and local income taxes (or sales taxes, but not both)
• Personal property taxes (like car registration fees)

The total deduction is capped at $10,000 (or $5,000 if married filing separately).

Real-world example

You pay $8,000 in property taxes and $6,000 in state income taxes. Your total SALT is $14,000, but you can only deduct $10,000.

• Total SALT paid: $14,000
• SALT deduction: $10,000
• Your tax bracket: 24%
• Tax savings: $10,000 × 24% = $2,400

Benefit #3: Home office deduction

If you work from home, you may be able to deduct a portion of your home expenses, including mortgage interest, property taxes, utilities, and internet.

Who qualifies?

• Self-employed individuals: You can deduct home office expenses if you use a portion of your home exclusively and regularly for business.
• W-2 employees: Unfortunately, the home office deduction for W-2 employees was eliminated by the Tax Cuts and Jobs Act (2018-2025). However, some states still allow it.

How to calculate the deduction

There are two methods:

Method 1: Simplified method

• Deduction: $5 per square foot of home office space
• Maximum: 300 square feet ($1,500 deduction)
• Example: Your home office is 200 square feet. Deduction = 200 × $5 = $1,000

Method 2: Regular method

• Calculate business percentage: (Home office square footage ÷ Total home square footage) × 100
• Apply percentage to expenses: Mortgage interest, property taxes, utilities, insurance, repairs
• Example: Your home is 2,000 sq ft. Your office is 200 sq ft (10%). Your total home expenses are $20,000. Deduction = $20,000 × 10% = $2,000

Which method is better?

The simplified method is easier, but the regular method often gives you a larger deduction, especially if you have high home expenses. Use both methods and choose the one that gives you the bigger deduction.

Benefit #4: Capital gains exclusion when you sell

When you sell your home, you can exclude up to $250,000 of capital gains ($500,000 if married filing jointly) from your taxable income, if you meet certain requirements.

Requirements for the exclusion

• Ownership test: You owned the home for at least 2 of the last 5 years
• Use test: You lived in the home as your primary residence for at least 2 of the last 5 years
• Look-back test: You haven't used this exclusion in the last 2 years

Real-world example

You bought a home for $300,000 and sold it for $600,000. Your capital gain is $300,000.

• Capital gain: $300,000
Exclusion (married filing jointly): $500,000
• Taxable gain: $0 (fully excluded)
• Tax savings: $300,000 × 15% (capital gains rate) = $45,000

You save $45,000 in capital gains taxes, that's a huge benefit of homeownership.

What if your gain exceeds the exclusion?

If your gain exceeds $250,000 (single) or $500,000 (married), the excess is taxed as a capital gain. Long-term capital gains rates are 0%, 15%, or 20%, depending on your income.

Benefit #5: Energy efficiency credits

The federal government offers tax credits for energy-efficient home improvements. These credits directly reduce your tax bill (not just your taxable income).

2026 energy efficiency credits

Residential Clean Energy Credit

• Credit: 30% of the cost of solar panels, solar water heaters, wind turbines, geothermal heat pumps, and battery storage
• Maximum: No limit
• Example: You install $20,000 in solar panels. Credit = $20,000 × 30% = $6,000

Energy Efficient Home Improvement Credit

• Credit: 10-30% of the cost of energy-efficient windows, doors, insulation, HVAC systems, and water heaters
• Maximum: $1,200 per year ($2,000 for heat pumps and biomass stoves)
• Example: You install $5,000 in energy-efficient windows. Credit = $5,000 × 10% = $500

Benefit #6: Mortgage points deduction

If you paid discount points to lower your interest rate, you can deduct them on your tax return.

How to deduct points

• Home purchase: Deduct all points in the year you paid them
• Refinance: Deduct points over the life of the loan (e.g., 1/30th each year for a 30-year loan)

Example

You paid $4,000 in points on a $400,000 mortgage (1 point = 1% of loan amount).

• Points paid: $4,000
• Your tax bracket: 24%
• Tax savings (year 1): $4,000 × 24% = $960

Benefit #7: Home improvement deductions (medical reasons)

If you make home improvements for medical reasons (ramps, wider doorways, grab bars, stair lifts), you may be able to deduct them as medical expenses.

Requirements

• Medical necessity: The improvement must be medically necessary (recommended by a doctor)
• Doesn't increase home value: You can only deduct the cost that doesn't increase your home's value
• Exceeds 7.5% of AGI: Total medical expenses (including home improvements) must exceed 7.5% of your adjusted gross income

Example

Your AGI is $100,000. You install a wheelchair ramp for $10,000. The ramp doesn't increase your home's value. Your total medical expenses (including the ramp) are $12,000.

• 7.5% of AGI: $7,500
• Medical expenses exceeding 7.5%: $12,000 - $7,500 = $4,500
• Your tax bracket: 24%
• Tax savings: $4,500 × 24% = $1,080

Should you itemize or take the standard deduction?

To benefit from mortgage interest, property taxes, and other itemized deductions, your total itemized deductions must exceed the standard deduction.

2026 standard deduction

• Single: $14,600
• Married filing jointly: $29,200
• Head of household: $21,900

When to itemize

You should itemize if your total deductions exceed the standard deduction. Common itemized deductions include:

• Mortgage interest
• Property taxes (up to $10,000 SALT limit)
• State and local income taxes (up to $10,000 SALT limit)
• Charitable contributions
• Medical expenses (exceeding 7.5% of AGI)

Example: Itemizing vs standard deduction

You're married filing jointly. Your deductions:

• Mortgage interest: $12,000
• Property taxes: $8,000
• Charitable contributions: $5,000
• Total itemized: $25,000
• Standard deduction: $29,200

In this case, you should take the standard deduction ($29,200) because it's higher than your itemized deductions ($25,000).

Frequently asked questions

Bottom line

Homeownership comes with significant tax benefits: mortgage interest deduction, property tax deduction, home office deduction, capital gains exclusion, energy efficiency credits, mortgage points deduction, and medical home improvement deductions. These benefits can save you thousands on your tax bill each year, but you must itemize to claim most of them.

Use our mortgage calculator to estimate your mortgage interest and see how much you could save on taxes.