As the year winds down, homeowners have a great opportunity to take control of their finances by exploring valuable homeownership tax deductions. These are expenses you can subtract from your taxable income, helping lower the amount of taxes you owe.
Taking a few steps now can help you keep more of your hard-earned money and improve your financial outlook for the year ahead. Whether you’re new to homeownership, a seasoned homeowner or recently refinanced, or have a conventional, VA, FHA loan or other type of mortgage, knowing which deductions you qualify for can make homeownership work to your advantage.
Core Deductions for Homeowners
As a mortgage holder, you may be eligible for several deductions that can help lower your tax bill. Here’s a quick look at the most common ones.
Mortgage Interest Tax Deduction
The mortgage interest deduction can be a significant tax saving for many homeowners. It is only available if you itemize your deductions, as it does not apply with the standard deduction. Here’s a breakdown of how it works:
- Deductible interest: You can typically deduct the interest paid on a loan used to buy, build or substantially improve your primary residence.
- Mortgage debt limits:
- For mortgages originated after December 15, 2017, you can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately).
- For mortgages originated before December 16, 2017, the limit is generally $1 million ($500,000 if married filing separately).
- Documentation: Your lender will provide Form 1098, which outlines the total interest you paid during the year. This form is essential for claiming your deduction.
Property Taxes
Property taxes are a significant expense for homeowners and are deductible on your federal income tax return as part of the State and Local Taxes (SALT) deduction.
- Cap amount: From 2025 through 2029, the deduction cap is $40,000 per household each year. The cap is $20,000 per year if you’re married and filing separately.
- What it includes: The cap covers the total amount of property taxes plus state and local income or sales taxes you pay.
- Higher-income phaseout:
- If your modified adjusted gross income (MAGI) is over $500,000 (or $250,000 if married filing separately), your deduction starts to phase down.
- Once your MAGI hits $600,000 (or $300,000 for married filing separately), your cap returns to $10,000 (or $5,000).
- Annual increase: The cap will rise by 1% each year through 2029.
- What happens next: In 2030, the cap will revert to $10,000 (or $5,000 for married filing separately) unless Congress makes further adjustments.
Mortgage Insurance and Points
Additional mortgage-related expenses can offer potential tax deductions.
- Mortgage insurance premiums: If your down payment was less than 20%, you likely pay mortgage insurance premiums (including private mortgage insurance or those tied to government-backed loans). For example, meeting FHA mortgage loan requirements often includes paying this type of insurance, which helps protect the lender if a borrower defaults. This deduction was set to expire, but as of July 2025, Congress has made it permanent.
- Mortgage “points”: Points, or prepaid interest, paid when securing your loan, may also be deductible. These can be deducted over the life of the loan or, in some cases, all at once in the year they were paid.
Additional Tax Savings Opportunities
Beyond the primary deductions, several other opportunities can help reduce your tax liability.
These often depend on your specific circumstances, such as your employment status or home improvements you have made.
Energy-Efficient Upgrades
Through December 31, 2025, homeowners can claim federal income tax credits worth up to $3,200 per year—covering as much as 30% of the cost of qualifying energy-efficient home improvements.
You can also benefit from the Residential Clean Energy Credit, which offers a 30% tax credit for clean energy systems like rooftop solar panels, wind turbines, geothermal heat pumps and battery storage. This credit is also available through the end of 2025.
The rules and credit amounts for these upgrades are specific, so be sure to keep detailed records of your purchases and installation costs. You can find more details on the ENERGY STAR website.
Home Office Deduction
With more people running businesses or freelancing from home, the home office deduction has become especially useful. If you’re self-employed and use part of your home regularly and exclusively for business, you may be able to write off a portion of your home expenses.
Here’s what can qualify:
- A percentage of your mortgage interest or rent
- Property taxes
- Homeowners or renters insurance
- Utilities like electricity, water, internet and heat
- Maintenance or repairs related to your workspace
You can calculate the deduction in two ways:
- Simplified method:
You can deduct $5 per square foot of your home office, up to 300 square feet (for a maximum deduction of $1,500). It’s quick, easy and requires minimal recordkeeping. - Regular method:
This method uses the percentage of your home’s total space that’s used for business. For example, if your office takes up 10% of your home’s square footage, you can generally deduct 10% of eligible expenses like utilities or mortgage interest. This method requires more documentation but may result in a larger deduction.
Keep in mind that the home office deduction is intended for self-employed individuals, freelancers and independent contractors—not employees working from home for convenience or company policy.
Refinancing and Your Tax Deductions
If you refinanced your mortgage this year, a few tax details may look different. While refinancing doesn’t create new deductions, it can affect how you claim existing ones, especially mortgage interest and points.
How Refinancing Affects Deductions
- Mortgage points: Points paid on a refinance are usually deducted gradually over the life of the new loan, rather than all at once.
- Interest payments: You can still deduct mortgage interest if the loan was used to buy, build or substantially improve your home. Interest on cash-out amounts used for other purposes (like paying off credit cards) generally isn’t deductible.
Closing costs and fees: Certain expenses, such as appraisal or title fees, aren’t deductible; however, keep records of what you paid, as some may be added to your home’s cost basis for future capital gains calculations. - Loan documentation: Your lender should provide a year-end statement showing interest paid and any deductible points.
It’s worth reviewing your refinance paperwork with a tax professional to ensure you’re reporting everything accurately and maximizing potential savings.
Year-End Tax Planning Tips
Maximizing your homeowner tax benefits starts with proactive planning. Here are some helpful steps you can take before the year comes to an end:
- Review your documents. Gather and review your important financial records. This includes your mortgage interest statement (Form 1098), property tax records and receipts for any eligible home improvements or energy-efficient upgrades.
- Consider prepayment. Depending on your financial situation and tax strategy, it might be beneficial to prepay certain expenses. For example, paying your January 2026 mortgage payment in December 2025 allows you to deduct the interest portion on your 2025 tax return. You might also be able to prepay property taxes due early next year, but be mindful of the SALT cap.
- Keep meticulous records. Maintain a detailed file of all home-related expenses. This includes records of your original purchase, documentation for any improvements made and all forms related to your mortgage and property taxes. Good organization makes tax preparation smoother and ensures you do not miss any potential deductions.
- Consult a professional. Tax laws are intricate and subject to change. The best course of action is always to consult a tax professional. They can provide personalized advice based on your financial situation, confirm your eligibility for various deductions and help you strategize the timing of payments to your advantage.
Make the Most of Your Homeownership Tax Savings
Your home plays a big role in your overall finances, from everyday costs to potential tax savings.
Taking a little time now to review your homeowner expenses could reveal deductions you’ve overlooked and free up some extra room in your budget. That might mean more to put toward spring projects, home upgrades or your long-term goals.
