Homeownership comes with meaningful tax advantages — but a significant portion of homeowners either do not use them or do not fully understand them. Here is what you should know.
The mortgage interest deduction
You can deduct the interest you pay on your mortgage from your federal taxable income, up to $750,000 of mortgage debt (for loans originated after December 15, 2017). On a $400,000 mortgage at 7%, you pay roughly $27,800 in interest in your first year. If you are in the 22% tax bracket, that deduction could save you around $6,100 in taxes.
However — and this is important — this deduction only benefits you if your total itemized deductions exceed the standard deduction ($16,100 single / $32,200 married filing jointly for 2026). Many homeowners, especially those with lower balances or later in their loan when interest payments are smaller, do not actually benefit from itemizing.
PMI and mortgage insurance are deductible again starting 2026
This is a recent, major change: the One Big Beautiful Bill Act (OBBBA), signed July 2025, permanently restored the deduction for mortgage insurance premiums — PMI on conventional loans, FHA MIP, VA funding fees, and USDA guarantee fees — treating them the same as mortgage interest. The deduction had expired after 2021 and was unavailable for several years; it comes back starting with tax year 2026 (the return you file in 2027).
Property tax deduction (SALT)
You can deduct state and local taxes including property taxes — this is the SALT deduction. For years this was capped at $10,000, but OBBBA raised that cap to $40,000 for 2025 and $40,400 for 2026 ($20,200 if married filing separately), rising slightly each year through 2029. The higher cap phases down for individuals or couples with income (MAGI) above $500,000, eventually returning to the old $10,000 limit for the highest earners. Unless Congress acts again, the cap reverts to $10,000 starting in 2030. In high-tax states and counties, this significantly higher limit changes the math on whether itemizing makes sense.
The capital gains exclusion — the biggest one most people underestimate
This is genuinely one of the most valuable tax benefits in the entire US tax code, and most homeowners do not fully appreciate it. When you sell your primary residence, you can exclude up to $250,000 in capital gains from taxes if you are single, or $500,000 if you are married filing jointly — as long as you have owned and lived in the home for at least 2 of the last 5 years.
Home office deduction
If you are self-employed and use part of your home exclusively and regularly for business, you may be able to deduct a portion of your mortgage interest, property taxes, utilities, and depreciation. The space must be used only for business — a dedicated room, not a kitchen table. This does not apply to employees working from home since the Tax Cuts and Jobs Act of 2017.
Energy efficiency tax credits — mostly gone now
The Residential Clean Energy Credit (30% for solar panels and similar systems) and the Energy Efficient Home Improvement Credit (up to $3,200/year for heat pumps, insulation, and efficient windows and doors) were both ended early by OBBBA — they expired for anything installed after December 31, 2025. If you completed a qualifying installation before that date, you can still claim the credit on that year's return. Going forward, check your state for its own energy efficiency incentives, since many exist independently of federal law.
What to do with this information
Track your mortgage interest and PMI paid (reported on Form 1098 from your servicer each January), your property taxes paid, and any home improvements. Improvements do not give you a deduction now — but they increase your cost basis, which reduces your capital gain when you sell. Keep records of every significant improvement you make to the property.
Tax laws change and individual situations vary significantly. Consult a licensed CPA or tax professional for guidance specific to your situation. This is educational information, not tax advice.