Homeowners

Tax Deductions Homeowners Must Know Before Filing This Year

Accountants are suddenly scrambling thanks to the arrival of tax season. With it come changes in tax deductions and credits that could make a real difference to the bottom lines of homeowners. And who doesn’t want that extra cash?

Homeowners may be eligible for money-saving tax deductions for mortgage interest payments, property taxes, and energy-efficiency credits for tax year 2025.

But to benefit, you'll need to itemize your deductions on your tax return, rather than taking the IRS standard deduction. This basically means you’ll break out your individual expenses.

For tax year 2025, the standard deduction is:

• $15,750 for individual filers
• $31,500 for married filing jointly
• $23,625 for heads of household

“These [deductions] only apply if your total itemized deductions exceed the standard deduction,” said Michael Lofley, a financial advisor at HBKS Wealth Advisors in Stuart, Fla. “But any homeowner should be pulling these numbers together and running the comparison at tax time to see where they land.”

If you own a home, here’s what you need to know to maximize your benefits this year.

Is mortgage interest tax deductible?

The mortgage interest deduction is one of the most valuable tax breaks available to homeowners. It allows you to deduct the interest you pay on your home loan. That can add up quickly.

This year, you can deduct home mortgage interest on up to $750,000 of qualifying mortgage debt, or up to $375,000 if you’re married filing separately.

If your mortgage balance is higher than that, you can generally only deduct interest tied to the first $750,000 of qualifying debt, according to the IRS.

You may be able to deduct interest on loans up to $1 million, or $500,000 if married filing separately, if you purchased your home before Dec. 16, 2017.

SALT deduction changes for 2025

One of the biggest changes for 2025 is the expansion of the state and local tax deduction, which is often referred to as SALT. This can be particularly valuable for homeowners in states with higher property taxes.

The deduction limit jumped significantly this year from $10,000 to $40,000 ($20,000 for married couples filing separately). This is for property taxes plus either state income taxes or sales taxes.

High earners may not benefit as much. The deduction phases out for single filers and those married filing separately with incomes above $250,000, and for married couples filing jointly with incomes above $500,000.

“This change may allow you to deduct significantly more in property taxes than in prior years,” said Lofley. “So, be sure to include all real estate taxes paid when itemizing your deductions."

Are mortgage points tax deductible?

If you paid mortgage points to lower your interest rate when you took out a home loan, you may be able to deduct the cost of them.

Your lender should send you Form 1098 showing the amount you spent to bring your mortgage rate down.

To qualify, the points must be for a mortgage used to buy or substantially improve your primary residence. They are calculated as a percentage of your loan amount and need to meet other IRS requirements.

Here's how the deduction works:

• You can typically deduct the full amount in the tax year you paid them.
• If your loan exceeds $750,000, you may only be able to deduct a portion based on how much of your mortgage falls within the limit.
• If you can’t claim the full amount now, you may be able to spread out the deduction across your loan term.

Home office tax deduction: A tax perk for the self-employed

Do you run a business from your home? You may be eligible for the home office tax deduction if you’re self-employed and use part of your home regularly and exclusively as your principal place of business.

Unfortunately, remote and hybrid workers can’t claim it if they’re classified as W-2 employees. These are generally people who have an employer.

There are two methods to file for this deduction: 

• Simplified method: Claim $5 for each square foot of office space, capped at 300 square feet.
• Regular method: Write off the portion of housing costs, like mortgage interest, property taxes, and utilities. This should match your office’s share of your home’s total square footage.

Tip: If eligible, the home office deduction could lead to additional benefits.

“When properly structured and documented, it's a legitimate and valuable deduction that can also unlock depreciation and partial write-offs of utilities, insurance, and repairs,” said Gene Bott, vice president and senior tax advisor at Tax Hive in Salt Lake City, Utah.

Capital gains exclusion when you sell your home

Capital gains taxes are what you owe on the profits you make from a home sale.

When you sell your primary residence, you can generally exclude up to $250,000 of your profit from capital gains taxes if you're single. Married couples filing jointly can exclude up to $500,000.

To qualify, you need to have owned the home and lived in it for at least two of the five years before the sale.

Tax deductions if you rent out part of your home

Homeowners may be less-than-thrilled to learn that if they rent out part of their home for more than 14 days a year, they must report that income to the IRS.

That applies whether you rented out a room in your home, a cottage on your property, or the entire home as a short-term rental, like an Airbnb, or to a renter with a 12-month lease.

Fortunately, you can deduct related rental expenses off of your taxes. This includes a percentage of your mortgage interest, property taxes, insurance, utilities, and depreciation.

For example, if you rented your spare bedroom for 90 days, you could deduct 90/365 (about 25%) of those expenses.

To file for this deduction, report your rental income and expenses on Schedule E (Form 1040).

Is home equity loan interest tax deductible?

If you have a home equity loan or Home Equity Line of Credit (HELOC), you may be able to deduct the interest you’re paying on the loan. The caveat is the funds must be used to buy, build, or substantially improve your home.

In other words, you may be able to write off interest on your home equity borrowing if you used the money to upgrade your kitchen or add a new room to your home.

But if you used the funds for personal expenses like taking a vacation, paying off medical debt, or college tuition, the interest would not be deductible.

Are home improvements tax deductible?

Home improvements typically aren’t tax deductible, unless they were for residential clean energy credits and energy efficient home improvements. If you made energy improvements in 2025, you may qualify for a federal tax credit.

These energy upgrades could include:

• Solar panels
• Energy efficient doors, windows, and skylights
• Insulation
• Heat pumps

“This is the last year to take many energy efficient credits that were previously available,” said Bott.

Make sure to file for them while you still can.

Check your state for additional homeowner tax deductions

In addition to the IRS tax deductions and credits, individual states may offer their own write-offs, credits, and exemptions.

For example, Montana homeowners may qualify for a property tax rebate of up to $400 for 2025. Meanwhile, California offers an exemption for qualified homeowners that reduces your home’s taxable value by $7,000 if it’s your primary residence.

Check your state tax agency’s website or ask your accountant about tax perks that may be available. While you’re at it, review all the federal write-offs you may be eligible to claim, not just those related to your home. Then compare itemizing versus the standard deduction to see which puts more money in your pocket.