Home-Related Tax Deductions

Mar 04, 2025

Tax season. Just the words can send shivers down your spine. But if you're a homeowner, there's a silver lining: potential savings!

You probably know you can deduct mortgage interest, but there are many other ways homeowners can lower their tax bill. Before you file, read on for the most common home-related tax deductions and credits, who qualifies, and how to get the most out of them.

2025 Tax Law Update: The One Big Beautiful Bill Act, signed July 4, 2025, changed several rules covered in this post:

SALT cap raised: The cap on state and local tax deductions rose from $10,000 to $40,000 for tax years 2025–2029, for households with incomes under $500,000. It phases down for higher earners.

Standard deduction raised: For 2025, it's $15,750 (single), $23,625 (head of household), and $31,500 (married filing jointly).

Mortgage interest limit made permanent: The $750,000 limit no longer expires.

Mortgage insurance (PMI) is deductible again starting in 2026, treated as mortgage interest.

Energy credits ended: The Energy Efficient Home Improvement Credit and the Residential Clean Energy (solar) Credit are not available for purchases made after December 31, 2025.

Always confirm current rules with a tax professional.[16][17]

The Basics

Tax Deductions vs. Tax Credits

Deductions lower your taxable income. If you earn $50,000 and claim $5,000 in deductions, you're taxed on $45,000.

Credits lower your tax bill directly. If you owe $10,000 and claim a $2,000 credit, you now owe $8,000.

Itemizing vs. the Standard Deduction

The standard deduction is a fixed amount you can subtract no matter what you actually spent. Itemized deductions are specific expenses, like mortgage interest, property taxes, and charitable donations.

You choose one or the other. Generally, you'll itemize only if your itemized deductions add up to more than the standard deduction. Most home-related deductions only help if you itemize.

Standard deduction amounts for 2025, as originally announced by the IRS:[1]

Single or married filing separately: $15,000
Head of household: $22,500
Married filing jointly: $30,000

These amounts were later raised. See the update box above.

Pro tip: Keep detailed records of every potentially eligible expense. It makes tax time easier and helps make sure you don't miss anything.

Key Home-Related Deductions and Credits

1. Mortgage Interest Deduction

You can deduct interest on a mortgage used to buy, build, or improve your primary residence or a second home.[2]

Limit: Interest on the first $750,000 of mortgage debt, or $375,000 if married filing separately.[3]
Requirements: The home must secure the loan (standard for mortgages) and must have sleeping, cooking, and toilet facilities.
Second homes you rent out: You must personally use the home for more than 14 days, or more than 10% of the days it's rented, whichever is longer.

Your lender sends you Form 1098 each year showing the interest you paid.[4] Because of amortization, you pay more interest in the early years of a loan. For example, if you're married filing jointly and your Form 1098 shows $25,000 in mortgage interest, you can deduct the full $25,000 if you itemize.

2. Property Taxes

You can deduct property taxes on your primary residence and second home, with some limits:[5]

Only general property taxes count. Special assessments for improvements that benefit your property, and fees for services like trash pickup, are not deductible, even if they're on the same bill.
The SALT cap applies to property taxes plus state income or sales tax combined.[6] See the update box for the new, higher limit.
Deduct what was actually paid to the tax collector, not what went into escrow. Your Form 1098 usually shows this amount.[7]

Florida note: Florida has no state income tax, so Florida homeowners can choose to deduct state and local sales tax along with property taxes, within the cap. Also, apply for Florida's Homestead Exemption on your primary residence by March 1. It lowers your property tax bill itself.

3. Home Equity Loan and HELOC Interest

Interest on a home equity loan or HELOC is deductible only if the money is used to buy, build, or substantially improve the home that secures the loan.[3] Using it for a car, a vacation, or paying off debt generally doesn't qualify.

"Substantial improvements" include things like an addition, a full kitchen remodel, or a new roof. Painting or new cabinets usually don't count.[8] Home equity debt also counts toward the same $750,000 total limit as your mortgage.

4. Home Improvements and Your "Cost Basis"

You usually can't deduct home improvements directly.[9] But capital improvements, projects that add value, like a new roof, an addition, or impact windows, are added to your home's cost basis.[10] A higher basis means a lower taxable gain when you sell.

Some home office expenses and certain medical or accessibility modifications may also be deductible, subject to specific rules.[11]

5. Energy-Efficient and Clean Energy Credits

For 2024 and 2025, homeowners could claim:[12][13]

Energy Efficient Home Improvement Credit: 30% of qualifying costs, up to $3,200 a year, with separate limits for items like windows and doors
Residential Clean Energy Credit: 30% of the cost of solar and other renewable energy systems

Important: Both credits ended for purchases made after December 31, 2025. See the update box above.

Selling Your Home and Taxes

Your capital gain is roughly your sale price minus your adjusted cost basis: what you paid, plus capital improvements, plus certain selling costs.

Example: You bought your home for $200,000 and added a kitchen remodel ($30,000), a new roof ($15,000), and landscaping ($5,000). Your adjusted basis is $250,000. If you sell for $350,000, your gain is about $100,000.

The Home Sale Exclusion

If you owned and lived in the home as your primary residence for at least 2 of the 5 years before the sale, you can exclude up to:[14]

$250,000 of gain if single
$500,000 if married filing jointly

That means many homeowners owe no capital gains tax when they sell their primary home.

For long-time South Florida homeowners: If you've owned your home for 15 to 25 years, your gain may be larger than you think. Keeping records of past improvements matters, because they raise your basis and lower your taxable gain. See The Hidden Cost of Living in a "Well-Loved" Home Too Long.

Record-Keeping Tips

Keep mortgage statements, property tax bills, closing documents, and receipts and permits for every improvement.[15]
Save both physical and digital copies.
Keep home records for as long as you own the home, plus at least three years after you file the return for the year you sell.

Bottom Line

Owning a home comes with real tax advantages, from mortgage interest and property taxes to the home sale exclusion. Tax laws change, as 2025 showed, so always talk with a qualified tax professional about your situation.

Thinking about buying, selling, or improving your home? I'm happy to help, and to refer you to a trusted tax advisor. Book a free consultation or find out what your home is worth.

Related reading:

This information is for general guidance only and is not tax, legal, or financial advice. Tax laws change. Consult a qualified tax professional about your situation.

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