Buying a home is frequently described as a tax advantage -- and it can be, but the specifics matter more than the general idea. Not all homeowners benefit from the mortgage interest deduction, the SALT cap limits property tax benefits, and the tax advantages of homeownership are front-loaded in the early years of a mortgage when interest is highest.
The Mortgage Interest Deduction
You can deduct interest paid on up to $750,000 of mortgage debt used to buy, build, or substantially improve a primary or secondary residence. (Loans taken out before December 16, 2017 have a higher $1 million limit.) This deduction requires itemizing.
In the first year of a 30-year mortgage on a $400,000 loan at 6.75%, you pay approximately $26,700 in interest. This is a meaningful potential deduction -- but only if it, combined with your other deductions, exceeds the standard deduction ($30,000 for married couples in 2026).
Many homeowners find that mortgage interest alone does not push them over the standard deduction. When combined with the SALT deduction (capped at $10,000) and charitable giving, many couples do clear the threshold -- especially in the first years of a mortgage when interest is highest.
Property Tax Deduction (SALT Cap)
Property taxes are deductible as part of the state and local tax (SALT) deduction, which is capped at $10,000 ($5,000 for married filing separately). This cap combines property taxes with state income taxes (or sales taxes). In high-tax states, the property tax alone may hit or exceed the cap, leaving no room for state income tax deduction.
Deducting Mortgage Points
If you paid points to buy down your mortgage rate, these may be deductible in the year paid (for a primary home purchase) or amortized over the life of the loan (for a refinance). One point = 1% of the loan amount. On a $400,000 loan, one point = $4,000. Fully deductible in year one for a purchase, if you itemize.
Home Office Deduction
If you are self-employed and use a dedicated portion of your home exclusively and regularly for business, you can deduct a portion of home expenses (or use the simplified $5/sq ft method). Employees who work from home cannot take the home office deduction under current tax law.
When You Eventually Sell: The Home Sale Exclusion
After you have owned and lived in your home for at least 2 of the 5 years before the sale, you can exclude up to $250,000 of gain from federal income tax (single) or $500,000 (married filing jointly). This exclusion can be used repeatedly -- there is no lifetime limit -- though not more than once every two years.
Planning implication: if you have a large gain building in a home, ensure you meet the 2-year ownership and use requirements before selling. If you move frequently, the exclusion may not be available.
Non-Deductible Home Costs
Mortgage principal, homeowners insurance, general maintenance, and utilities are not deductible for a personal residence. Only interest, property taxes (within the SALT cap), and points create federal tax deductions for most homeowners. Home improvement costs do not generate a current deduction but can increase your cost basis, reducing eventual capital gains when you sell.
Use our Income Tax Calculator to estimate whether your new homeownership deductions are enough to benefit from itemizing.
Tax Benefits and Obligations of Homeownership
Buying a home creates both new tax deductions and new filing responsibilities. The tax picture of homeownership has changed significantly since the 2017 Tax Cuts and Jobs Act — and again in 2026 with the expanded SALT cap. Here's what applies now and what to plan for.
Mortgage Interest Deduction
You can deduct interest paid on up to $750,000 of qualified mortgage debt (reduced from $1 million for loans originated before December 16, 2017). This covers your primary residence and one secondary home. The deduction is only available if you itemize — and it's worth recalculating in 2026 given the expanded SALT deduction cap, which may push more homeowners over the itemizing threshold.
The Expanded SALT Cap in 2026
The OBBBA raised the SALT deduction cap from $10,000 to $40,000 for 2026 (with a phase-out at higher income levels). For homeowners in high-property-tax areas, this is a significant change. If your state income taxes and property taxes combined now clear the old $10,000 cap, the expanded cap may make itemizing worthwhile for the first time in years. Add your mortgage interest on top of the larger SALT deduction and compare to the $31,500 married filing jointly standard deduction.
Points Paid at Closing
If you paid discount points to buy down your interest rate at closing on a primary residence purchase, those points may be fully deductible in the year of purchase. Points on a refinance must be deducted over the life of the loan rather than all at once. Both require itemizing to claim.
The Home Sale Exclusion
When you eventually sell, you can exclude up to $250,000 of gain from capital gains tax ($500,000 for married filing jointly) if the home was your primary residence for at least 2 of the last 5 years. This exclusion can be used once every two years. Gains above the exclusion are taxed as long-term capital gains if you've owned the home longer than a year.
Home Office Deduction (Self-Employed Only)
W-2 employees cannot currently claim a home office deduction — the unreimbursed employee expense deduction was eliminated through at least 2025. Self-employed homeowners, however, can deduct a proportional share of home costs (including mortgage interest and property taxes) for a dedicated office space.
Use our income tax calculator to compare your expected itemized deductions against the standard deduction after purchasing, and our standard vs. itemized deduction guide for a full comparison.
Tracking Your Home's Cost Basis Over Time
Your home's cost basis matters enormously when you sell. The exclusion ($250,000 single / $500,000 married) covers most gains for moderate-priced homes, but in high-appreciation markets -- California, New York, major metros -- long-term homeowners can accumulate gains well beyond the exclusion. Every qualifying improvement you make increases your cost basis and reduces taxable gain when you sell. Kitchen remodel, addition, new roof, HVAC replacement, landscaping that adds value -- these improvements (not maintenance and repairs) add to your basis. Keep receipts and contractor invoices for all capital improvements throughout your ownership. A homeowner who buys for $400,000, makes $100,000 of improvements, and sells for $800,000 has a $300,000 gain -- within the $500,000 married exclusion. Without proper improvement records, they appear to have a $400,000 gain and may owe tax on the $100,000 excess. Records that take minutes to save can be worth thousands of dollars in basis protection decades later.
Energy Tax Credits for Homeowners
Beyond deductions, homeowners may qualify for federal energy tax credits for qualifying improvements. The Energy Efficient Home Improvement Credit (25C) allows up to $3,200 per year for qualifying heat pumps, water heaters, insulation, windows, and doors. The Residential Clean Energy Credit (25D) provides a 30% credit for solar panels, solar water heaters, battery storage, and geothermal heat pumps. Unlike deductions, these are dollar-for-dollar reductions in your tax bill and do not require itemizing. Energy credits are among the most valuable homeowner tax benefits and are often overlooked entirely.