The big three deductions
Homeowners who itemize can deduct three major items on their federal return:
- Mortgage interest on up to $750,000 of mortgage debt for loans taken after December 15, 2017 ($1 million for older loans).
- State and local taxes (including property tax), capped at a combined $10,000 per year.
- Mortgage insurance premiums — currently deductible but subject to income phase-outs and renewed annually by Congress.
Why itemizing matters less than it used to
The standard deduction nearly doubled in 2018. For 2026, it's roughly $15,000 for single filers and $30,000 for married filing jointly.
You only benefit from itemizing if your total itemizable deductions exceed the standard. For many homeowners with smaller mortgages or in lower-tax states, the standard deduction is now larger than what they could itemize — meaning they get the standard regardless and the mortgage interest deduction provides no incremental benefit.
The deductions still help significantly for: borrowers with large mortgages in high-cost areas, borrowers in high-tax states (CA, NY, NJ, etc.), and borrowers with charitable giving and other itemizable deductions stacked on top.
Capital gains exclusion on home sale
This one applies to most homeowners regardless of itemizing. When you sell your primary residence, you can exclude up to:
- $250,000 of capital gains if filing single.
- $500,000 of capital gains if married filing jointly.
Requirements: you must have owned and lived in the home for at least 2 of the last 5 years before the sale.
This is a meaningful benefit. On a home that appreciated $300,000 over a decade of ownership, the exclusion saves $50,000–$70,000 in capital gains tax for many filers.
Home office deduction
If you use a portion of your home exclusively for business, you may be able to deduct a portion of mortgage interest, utilities, insurance, depreciation, and repairs. The IRS allows two methods:
- Simplified: $5 per square foot of dedicated home office space, up to 300 sq ft.
- Regular: Allocate actual expenses by the percentage of the home used for business.
The home office deduction is for self-employed and 1099 contractors. W-2 employees can no longer claim it (changed in 2018).
Energy-efficient home improvements
Tax credits for solar, heat pumps, electric vehicle chargers, and energy-efficient windows have expanded under recent legislation. Credits can offset 30%+ of installation costs in some cases. These are credits, not deductions — meaning they reduce tax owed dollar-for-dollar.
What's NOT deductible
Common misconceptions:
- Homeowner's insurance premiums (unless used for a deductible business purpose).
- HOA dues.
- Down payment.
- Closing costs (though some closing costs add to your home's basis for capital gains purposes).
- General home repairs and maintenance.
- Utilities (unless allocated to home office).
Talk to a tax professional
This is a high-level overview, not tax advice. Your specific deductions depend on your filing status, income, mortgage amount, state of residence, and other factors. Run your scenario by a CPA or tax preparer before relying on any specific number.
Modeling a purchase or refinance?
We can help you understand the cash side. Reach out and we'll run scenarios that account for the financial trade-offs.