As a homeowner, there are many tax breaks you may be eligible for, including deductions for mortgage interest and property taxes, credits for energy-efficient home improvements, and more. This article covers the credits and deductions that can help you make the most of your tax situation.
Understanding tax write-offs for homeowners
If you are new to homeownership, there are certain tax deductions and credits that you may qualify for now that you did not qualify for or consider previously. It is helpful to know which ones you can claim, whether you itemize or not.
Mortgage Interest Deduction
The Mortgage Interest Deduction allows you to reduce your taxable income by the interest you pay on the loan you take out to buy your home. You can deduct interest on mortgages up to $750,000. Under the One Big Beautiful Bill (OBBB), the $750,000 limit on the mortgage interest deduction was made permanent, and mortgage insurance premiums can be deducted as part of your mortgage interest starting in 2026 (returns filed in 2027).
When you take out a home equity line of credit (HELOC), the IRS treats it as home acquisition debt, like a mortgage. This means you can deduct the interest paid on the line of credit.
For tax years 2018 through 2025, you can only claim interest if you used the credit to substantially improve the residence. For example, replacing your HVAC, installing a new roof, or remodeling the kitchen are qualified uses of a HELOC for the interest deduction.
State and Local Property Tax Deduction
If you itemize your deductions, you can deduct any property tax you paid when you purchased your home. Depending on your situation, you may have had to reimburse the seller of your home for property taxes they prepaid. That amount is deductible and can be found on your settlement documents.
You pay property taxes annually, so you have the option to deduct them every year. Under the OBBB, the limit is temporarily increasing to $40,000 beginning in 2025, and it will increase by 1% for the next five years before it drops back down to $10,000 in 2030. For tax years 2018-2024, the total amount you can write off for all state and local income, property, and sales tax combined is capped at $10,000 ($5,000 if married filing separately). Depending on which is more beneficial, you may deduct more property tax and less state income tax, or vice-versa.
Home Office Deduction
If you are self-employed, filing a 1099, or a statutory employee, you may be eligible to deduct your home office expenses. You can claim these expenses whether you itemize or take the standard deduction. If you have a dedicated home office space you consistently and exclusively use to work, the associated costs could be deductible. There are two ways to calculate your home office expenses: the regular method and the simplified method.
The regular method involves calculating the percentage of your home’s total square footage that’s used as a home office. Then, you apply that percentage to the total cost of qualifying expenses like utilities, insurance, and mortgage interest. Although this method takes more time and documentation, it more accurately measures your home office expenses. Remember to include costs such as office supplies, furniture, and equipment, as these are fully deductible.
The simplified method gives you another option for figuring out your home office deduction without calculating the exact cost. Using this method, you can claim $5 per square foot of home office space up to 300 square feet. This means the deduction will max out at $1,500. Understanding can help you get the most out of this write-off.
Capital gains tax exemption
If you decide to sell your home, any profit you make is considered a capital gain. You must pay capital gains tax on the sale of a home, but the IRS offers a hefty tax break that could allow you to avoid paying taxes on a large part or all those profits.
The Section 121 exclusion allows you to deduct the first $250,000 in capital gains if you’re a single filer. If your filing status is married filing joint, you can deduct up to $500,000.
If you don’t meet the criteria for the Section 121 Exclusion, you may still be able to exclude a portion of your gains. For example, if the main reason you sold your home was for a new job, a new office location, a health issue, or an unpredictable event, you will probably be able to exclude a portion of the gain from your sale.
To qualify, you must pass two tests:
- Ownership Test: You must have owned the home for at least two out of the five years before selling it. For couples filing married jointly, at least one spouse must meet the ownership requirement.
- Use Test: The residence must have been used as your primary home for at least two out of the five years prior to the sale.
You do not have to meet the tests in the same two-year period and the days do not have to be continuous. But you must meet both criteria during the five years directly before selling your home.
If you have multiple homes and have excluded capital gains from the sale of another home in the two years leading up to the sale of your home, you will not qualify for the exclusion. For more information on the eligibility requirements, refer to IRS Publication 523.
Medically necessary home improvements
If you make repairs or improvements that make your home more accessible, you can itemize them as medical expenses. However, they must be considered necessary for accessibility and safety for you, a spouse, or dependents with health conditions or disabilities.
For tax purposes, there is a difference between repairs and improvements. While repairs fix existing issues, improvements are intended to increase the property’s value or adapt it to medical needs. According to IRS guidelines, medically necessary home improvements may be tax-deductible if they meet specific criteria, such as being recommended by a licensed medical professional to alleviate a health condition or accommodate a disability. You may deduct items like adding ramps, widening doors, and installing rails and support bars. The IRS provides more examples of medically necessary improvements that could be deductible in Publication 502.
Homeownership costs that are not tax deductible
You might be surprised to learn that these common expenses aren’t deductible:
- Routine maintenance and repairs such as fixing leaks, painting, and lawn care
- Personal expenses like utilities, groceries, and furnishings
- Homeowner’s insurance premiums
- Mortgage payments
- HOA fees
Generally, the deductibility of expenses depends on its necessity and its purpose. While aesthetic home improvements may increase your property’s value, they are generally not deductible.
Note: As of 2018, you can no longer deduct foreign real estate taxes or moving expenses, except for military personnel moving on orders.
Energy efficient credits
Making your home more energy-efficient has benefits beyond reducing your carbon footprint and lowering utility costs. For homeowners who completed qualifying upgrades before the credits expired, these improvements may also have provided valuable tax savings.
The Residential Clean Energy Credit covered eligible renewable energy installations and upgrades, including solar panels and geothermal heat pumps.
The Energy Efficient Home Improvement Credit allowed homeowners to claim 30% of eligible expenses for qualified upgrades such as windows, doors, and insulation, up to annual limits.
Please note: Under the One Big Beautiful Bill Act (OBBB), both the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit expired on December 31, 2025. However, taxpayers who were eligible may generally still claim these credits by filing or amending prior-year tax returns, subject to IRS rules and applicable deadlines.
How to claim homeowner tax breaks using TaxSlayer
To claim homeowner tax breaks, keep records of qualifying expenses and complete the appropriate IRS forms when filing your federal tax return. Common forms include Schedule A for itemized deductions such as mortgage interest and property taxes, Form 5695 for eligible residential energy credits, Form 8829 for the home office deduction, and Form 1040-X if you need to amend a prior-year return. Keeping documents such as Form 1098, property tax records, receipts, invoices, and settlement statements can help support your claim.
TaxSlayer makes it easy to claim the homeowner tax deductions and credits you deserve. TaxSlayer Classic covers all tax situations without restrictions, and you can upgrade to Premium for extra support options, such as live chat or one-on-one help from a tax professional.
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