Homeowner Tax Deductions and Credits: What You Can Claim in 2026

Table of Contents

• What Changed for Homeowners in 2026
• Mortgage Interest Deduction
• State and Local Tax (SALT) Deduction
• Private Mortgage Insurance (PMI) Deduction
• Home Equity Loan and HELOC Interest
• Property Tax Deduction
• Energy Efficiency Tax Credits: What Expired and What Remains
• Home Office Deduction
• Capital Gains Exclusion When You Sell
• Should You Itemize or Take the Standard Deduction?
• Frequently Asked Questions

Owning a home is one of the most tax-advantaged things you can do with your money — but only if you know which deductions and credits to claim. The tax landscape for homeowners shifted significantly in 2025 and 2026, thanks to the One Big Beautiful Bill Act (OBBBA), which changed the SALT deduction cap, made the mortgage interest deduction limit permanent, restored the PMI deduction, and eliminated residential energy credits.

Whether you’re filing your 2025 return this spring or planning ahead for 2026, here’s a complete guide to every tax break available to homeowners right now.

What Changed for Homeowners in 2026

The One Big Beautiful Bill Act (OBBBA), signed into law in 2025, made several significant changes that affect homeowner taxes starting in tax years 2025 and 2026:

• SALT deduction cap raised to $40,000 (from $10,000) for tax years 2025–2029, with a phase-down for incomes above $500,000
• Mortgage interest deduction limit of $750,000 made permanent — it was previously set to revert to $1 million after 2025
• PMI premiums deductible again starting in 2026, treated as deductible mortgage interest
• Residential energy credits eliminated — the 30% credit for solar panels, heat pumps, windows, and other energy-efficient improvements expired after December 31, 2025
• Standard deduction increased for 2026 to $15,950 (single) and $31,900 (married filing jointly) due to inflation adjustments

Mortgage Interest Deduction

The mortgage interest deduction remains the single largest tax benefit for most homeowners. If you itemize deductions, you can deduct the interest you pay on your mortgage — including any points paid at closing, which are a form of prepaid interest.

According to IRS Publication 530, the deduction applies to interest on up to $750,000 of home acquisition debt ($375,000 if married filing separately). If you took out your mortgage before December 16, 2017, the higher $1 million limit still applies under grandfathering rules. The OBBBA made the $750,000 limit permanent for newer loans.

To qualify, the loan must be secured by your primary residence or one second home. You’ll receive a Form 1098 from your lender each January showing the total interest paid during the prior year.

What Counts as Deductible Mortgage Interest

• Interest on your primary mortgage
• Interest on a mortgage for a second home
• Points paid on a new purchase mortgage (deductible in the year paid)
• Points paid on a refinance (deductible over the life of the loan)
• Late payment charges on mortgage payments

What Doesn’t Count

• Interest on mortgage amounts above the $750,000/$1 million limit
• Interest on loans used for non-home purposes, even if secured by your home
• Your principal payments (only interest is deductible)

State and Local Tax (SALT) Deduction

The SALT deduction is the biggest tax change for homeowners in 2025–2026. Since 2018, homeowners could only deduct up to $10,000 in combined state and local taxes — including property taxes, state income taxes, and local taxes. For homeowners in high-tax states like New York, New Jersey, California, and Connecticut, this cap eliminated a significant tax benefit.

Under the OBBBA, the cap rises to $40,000 for tax years 2025–2029 for filers with modified adjusted gross income under $500,000 ($250,000 if married filing separately). For incomes above $500,000, the cap phases down by 30% until it reaches $10,000. The cap and income threshold will increase by 1% annually through 2029, then revert to $10,000 in 2030 unless Congress acts again.

If you pay $15,000 in property taxes and $12,000 in state income taxes, your combined SALT total is $27,000 — fully deductible under the new cap if your income qualifies. Under the old $10,000 cap, you would have lost $17,000 in deductions.

Private Mortgage Insurance (PMI) Deduction

If you put less than 20% down on a conventional mortgage, your lender likely requires you to pay private mortgage insurance. PMI typically costs 0.5%–1.5% of your loan amount annually — on a $350,000 loan, that’s roughly $1,750–$5,250 per year.

The PMI deduction had expired after 2021, but the OBBBA revived it starting in tax year 2026. PMI premiums will be treated as deductible mortgage interest for homeowners with adjusted gross income below $100,000, with the deduction phasing out completely at $110,000.

According to Florida Realtors, when this deduction was previously available, qualifying homeowners saved an average of about $2,300 per year. If you’re currently paying PMI, this is a meaningful benefit — and another reason to evaluate whether itemizing makes sense for your situation. Note that FHA mortgage insurance premiums are treated differently and may not qualify under the same rules.

Home Equity Loan and HELOC Interest

Interest on a home equity loan or HELOC is deductible — but only if the funds were used to buy, build, or substantially improve the home securing the loan. The IRS has been clear that using a HELOC for debt consolidation, paying off credit cards, covering tuition, or other non-home purposes means the interest is not deductible, even though the loan is secured by your home.

The combined total of your first mortgage and home equity debt cannot exceed $750,000 ($1 million if grandfathered) for the interest to be deductible. So if you have a $600,000 mortgage and a $200,000 HELOC, you’re at $800,000 — and only the interest on the first $750,000 would be deductible.

If you’re considering a HELOC for home improvements, the tax deductibility of the interest can effectively reduce the cost of the loan. Use our HELOC calculator to estimate your potential borrowing power.

Property Tax Deduction

Property taxes are deductible as part of the SALT deduction described above. You can deduct the property taxes you actually paid during the calendar year — not the amount assessed or the amount held in escrow. These two numbers are often different.

If you bought or sold a home during the year, property taxes are prorated between buyer and seller based on the closing date. Your settlement statement will show the exact amount you’re responsible for. First-year homebuyers should review their closing disclosure carefully to capture every dollar of deductible property tax.

Energy Efficiency Tax Credits: What Expired and What Remains

This is the biggest loss for homeowners in the OBBBA. The residential energy credits created by the Inflation Reduction Act — including the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit — expired after December 31, 2025.

According to the IRS, these credits were available for improvements installed through 2025:

• Energy Efficient Home Improvement Credit: 30% of costs up to $1,200 per year for insulation, windows ($600 cap), exterior doors ($250 per door, $500 total), and home energy audits ($150). Heat pumps, water heaters, and biomass stoves qualified for a separate $2,000 annual credit.
• Residential Clean Energy Credit: 30% of costs with no annual cap for solar panels, solar water heaters, wind turbines, geothermal heat pumps, and battery storage.

If you completed qualifying improvements in 2025, you can still claim these credits on your 2025 tax return, which you’ll file this spring. Make sure you have receipts, contractor invoices, and the manufacturer’s Qualified Manufacturer Identification Number (QMID) for eligible products.

For 2026 and beyond, no federal residential energy tax credits are currently available. Energy-efficient upgrades may still make financial sense based on utility savings and increased home value, but the federal tax incentive is gone. Some states continue to offer their own energy efficiency incentives — check your state’s programs at Energy Star or the Database of State Incentives for Renewables & Efficiency (DSIRE).

Home Office Deduction

If you use a dedicated space in your home exclusively and regularly for business, you may qualify for the home office deduction. This applies to self-employed individuals, freelancers, and independent contractors — but not W-2 employees, even if you work from home full-time.

There are two methods for calculating the deduction:

• Simplified method: $5 per square foot of home office space, up to 300 square feet (maximum $1,500 deduction)
• Regular method: Calculate the actual percentage of your home used for business and deduct that portion of mortgage interest, property taxes, utilities, insurance, repairs, and depreciation

The regular method typically yields a larger deduction but requires detailed record-keeping. If you’re self-employed and work from home, running the numbers both ways will help you determine which method saves more.

Capital Gains Exclusion When You Sell

When you sell your primary residence, you can exclude up to $250,000 in profit from capital gains taxes ($500,000 for married couples filing jointly). To qualify, you must have owned the home and used it as your primary residence for at least two of the five years before the sale.

For most homeowners, this means you’ll pay zero federal taxes on your home sale profit. If your home has appreciated significantly beyond these thresholds — increasingly common in high-growth markets — the excess gain is taxed at capital gains rates (0%, 15%, or 20%, depending on your income).

The cost basis of your home includes your original purchase price plus any capital improvements you’ve made (new roof, kitchen remodel, room addition — but not routine maintenance). Keeping records of these improvements throughout your ownership can reduce your taxable gain if you ever exceed the exclusion.

Should You Itemize or Take the Standard Deduction?

Here’s the reality many homeowners don’t consider: these deductions only save you money if your total itemized deductions exceed the standard deduction. For 2026, the standard deduction is $15,950 for single filers and $31,900 for married couples filing jointly.

To decide, add up your potential itemized deductions: mortgage interest, property taxes, state income taxes (capped under SALT), charitable contributions, and any other qualifying expenses. If the total exceeds your standard deduction, itemize. If it doesn’t, take the standard deduction — it’s that straightforward.

The increased SALT cap does change the math for many homeowners who couldn’t benefit from itemizing before. If you live in a state with high property taxes or income taxes, it’s worth recalculating now that the cap is $40,000 instead of $10,000.

A quick example: A married couple with $12,000 in mortgage interest, $8,000 in property taxes, and $7,000 in state income taxes has $27,000 in SALT-related deductions alone. Under the old $10,000 cap, their total would have been limited to $22,000 ($12,000 mortgage interest + $10,000 SALT) — below the $31,900 standard deduction. Under the new $40,000 cap, their full $27,000 counts, potentially making itemizing worthwhile when combined with other deductions like charitable giving.

Frequently Asked Questions