Homeowner tax deductions that seem too good to be true

Owning your own home is expensive. Mortgage, insurance, property taxes, repairs… are you missing the old rental days with your landlord yet?

Fortunately, homeowner tax deductions can help curb some of these costs. Now, don’t start planning a full remodel or a much-needed tropical vacation with that windfall of extra cash you’re picturing right now. Not every cost qualifies, and some tax breaks for homeowners require itemizing instead of taking the standard deduction.

There may be relief in your mortgage payment

Your mortgage is one of your biggest expenses. Surely some of it deserves a tax break? The good news is that it does. If you itemize, interest on a qualifying mortgage for your primary or second home may be deductible.

If you took your loan out after December 15, 2017, the limit covers interest on up to $750,000 of debt (or $375,000 if you’re married filing separately). For older loans, the limit is up to $1 million (or $500,000 if you’re married filing separately). 

In order to deduct your interest, the mortgage must be secured by the home, and the funds must have been used to buy, build, or substantially improve it. Paid mortgage points may also be deductible, either in the year they were paid or over the life of the loan. 

This doesn’t mean your entire mortgage payment is deductible. Repaying money you borrowed isn’t a tax write-off, so the principal doesn’t count.

Add in some SALT

Opening the mailbox and finding a property tax bill is one way to ruin your day. And while you can’t completely get rid of these taxes, you can include them in the SALT deduction (a cute little acronym that means state and local taxes). 

You’ll have to itemize for this one, too. When you do, property taxes can be combined with state and local income taxes or sales taxes. For 2026, the combined limit is $40,400 (or $20,200 if married filing separately). 

That limit starts shrinking if your modified adjusted gross income exceeds $505,000 (or $252,500 if married filing separately). But it won’t fall below $10,000 (or $5,000 separately), so you won’t be completely iced out at higher income levels. 

It’s no surprise that not everything qualifies. Assessments for improvements like new sidewalks or sewer lines aren’t going to make the cut. 

And this is only the beginning. 

See how you can cash in if you borrow against your home, work in it, or sell it. 

A HELOC is more than just borrowed money

A home equity loan or home equity line of credit (HELOC) does more than just fund a renovation. It may also have deductible interest, but only if you use the money to buy, build, or substantially improve the home that secures the loan. 

So, need a new kitchen? Check. Want to pay credit card bills, buy a new car, or cover everyday expenses? Cue the game show losing buzzer sound. That’s a no-go. And remember that mortgage interest we talked about earlier? Qualifying HELOC debt shares the same debt cap – it’s not a completely separate deduction.

A benefit that’s even better than working in your pajamas

Working from home is a total win. After all, where else can you work that doesn’t require a commute, water cooler gossip, or even shoes? And you may even be able to get a tax break for it. 

The home office deduction is generally available to self-employed people and business owners. If you’re a W-2 employee who works remotely, you’ll have to sit this one out. You’ll also need a space that is used regularly and exclusively for qualifying business purposes. Using your laptop at the kitchen table while chomping on a Pop-Tart isn’t going to cut it. 

The IRS gives you two ways to calculate your deduction. You can use the simplified method that’s, well, pretty simple. You can claim up to $5 per square foot (for up to 300 square feet) for a maximum deduction of $1,500. 

You can also use the actual-expense method and allocate qualifying utilities, insurance, repairs, mortgage interest, and property taxes between business and personal use. It’s definitely not simplified, but it could result in a higher deduction. 

There’s a perk when you’re ready to move on, too

If you see a big move in your future, this tax break is for you. The home-sale exclusion allows you to exclude certain gains from selling your main home. You can exclude up to $250,000 in gain from federal income tax, or up to $500,000 if you’re married filing jointly. And that’s gain, not the whole sale price.  

If you sell your house for $600,000 with an adjusted basis of $400,000, you’re looking at a $200,000 gain before selling expenses. And if everything checks out, all of that could escape federal income tax. Just keep in mind that major upgrades can increase your home’s adjusted basis and reduce the gain when you sell. 

And of course, the IRS has its checklist of requirements. You have to have owned and lived in the home as your main residence for at least two of the five years before selling. And if you used the exclusion on another sale during the last two years, you usually can’t get another one. If you have to move because of your health, your job, or unforeseen circumstances, a partial exclusion may be available. 

Homeownership is expensive, but some expenses have legitimate tax perks. Keep records of mortgage interest, property taxes, major improvements, and business use of your home. You’ve spent enough on your house. It’s time to take the tax breaks you’ve earned.