Homeowner Tax Deductions Guide 2025
Maximize your tax savings with mortgage interest, property taxes, and home office deductions
Our editorial team writes these guides directly from the IRS source material. This guide covers everything from mortgage interest to energy credits based on the latest IRS rules and OBBB changes.
What tax deductions can homeowners claim in 2025?
Homeowners can deduct mortgage interest (up to $750K of acquisition debt; $375K MFS), property taxes (as part of the SALT cap: $40K for 2025 under OBBB, reduced when MAGI is over $500K), points paid on purchase, and home office expenses if self-employed. Energy credits of up to 30% for solar and heat pumps apply only to work installed by December 31, 2025 (claimed on your 2025 return); OBBB ended both home-energy credits for 2026. When selling, exclude up to $250K/$500K in capital gains.
- •Mortgage interest on loans up to $750K ($375K married filing separately)
- •Property taxes part of the $40K SALT cap (phased down above $500K MAGI, floor $10K)
- •30% energy credits ended with 2025 installations
- •$250K/$500K capital gains exclusion when selling
Homeownership in the U.S. tax code is a strange mix of generous and stingy. The capital gains exclusion at sale ($250K single / $500K MFJ) is one of the largest tax breaks in the code. But the mortgage interest and SALT deductions only help if you itemize — which, post-TCJA, most homeowners no longer do.
Real-world scenario
Couple sells primary residence after 8 years, $625K gain
MFJ exclusion: $500,000. Taxable LTCG: $125,000. At 15% federal + state, federal tax owed: ~$18,750. Without the exclusion: ~$94K. The exclusion requires 2-of-5-year ownership and use tests — sold at year 6 of ownership and 6 years of primary use, easily qualified. Partial exclusions available for job changes, health, unforeseen circumstances under shorter periods.
The part most people miss
Home office depreciation taken during ownership is NOT excludable under Section 121 — it's recaptured at sale at up to 25%. Most home-based freelancers don't realize this when they start claiming the home office deduction. The simplified method ($5/sqft, capped at $1,500) avoids the depreciation recapture trap; the regular method doesn't.
Key Homeowner Deductions at a Glance
Up to $750K of acquisition debt ($375K MFS), or $1M ($500K MFS) if all incurred before Dec 16, 2017
Part of SALT deduction (capped at $40,000 for 2025 under OBBB; reduced above $500,000 of MAGI, never below $10,000)
$5/sq ft (up to 300 sq ft) or actual expenses
Deductible in year paid or over loan life
Up to 30% for solar, heat pumps, etc. — 2025 installations only
$250K single / $500K married when selling
Mortgage Interest Deduction
The mortgage interest deduction is one of the most valuable tax benefits for homeowners. You can deduct interest paid on loans used to buy, build, or substantially improve your primary residence and one additional home.
2025 and 2026 limits
What Qualifies
- Interest on your primary mortgage
- Interest on a second home mortgage
- Home equity loan interest (if used to buy, build, or improve the home)
- Points paid on purchase or refinance (may need to be spread over loan term)
What Does NOT Qualify
- Home equity loan used for other purposes (car, vacation, debt consolidation)
- Interest on a third or more homes
- Homeowners insurance premiums
- Principal payments on your mortgage
Important: Standard Deduction Consideration
You can only claim mortgage interest if you itemize deductions. With the 2025 standard deduction at $15,750 (single) or $31,500 (married) under OBBB — rising to $16,100 / $32,200 for 2026 — many homeowners find itemizing no longer makes sense unless their total deductions exceed these amounts. Note: The SALT cap is $40,000 for 2025 ($40,400 for 2026), reduced by 30% of MAGI above $500,000 ($505,000 for 2026) but never below $10,000.
Property Tax Deduction (SALT)
Property taxes are deductible as part of the State and Local Tax (SALT) deduction.The OBBB Act increased the cap from $10,000 to $40,000 for 2025 ($40,400 for 2026), rising 1% a year through 2029 and reverting to $10,000 in 2030. High earners get less: the cap is reduced by 30% of modified AGI above $500,000 ($505,000 for 2026), but never below $10,000.
The SALT Cap (OBBB Updated)
This cap includes ALL state and local taxes: property taxes, state income taxes (or sales tax), and local income taxes combined.
What Counts Toward SALT
- Real estate property taxes on your home
- State income taxes OR state sales taxes (choose one)
- Local income taxes
- Personal property taxes (like car registration fees based on value)
Example: High-Tax State Homeowner
Home Office Deduction
Who Can Claim This
The home office deduction is ONLY available to self-employed individuals and independent contractors. W-2 employees cannot claim this deduction, even if they work from home full-time.
Requirements
- Regular and exclusive use: The space must generally be used regularly and exclusively for business. Exceptions: a qualifying home daycare (deduct by the share of hours used) and storage of inventory or product samples when your home is the only fixed location of your retail or wholesale business.
- Principal place of business: Must be your main place of business OR where you meet clients
Simplified Method
Maximum 300 sq ft = $1,500 max deduction
Regular Method
Based on percentage of home used
Expenses You Can Deduct (Regular Method)
Direct Expenses (100%)
- • Painting or repairs to office only
- • Office furniture and equipment
- • Dedicated phone line
Indirect Expenses (Proportional)
- • Mortgage interest or rent
- • Utilities (electric, gas, water)
- • Homeowners insurance
- • Home depreciation
- • Repairs and maintenance
Energy Efficiency Tax Credits
The One Big Beautiful Bill Act (P.L. 119-21) ended both home-energy credits early. The Residential Clean Energy Credit (§25D) does not apply to expenditures made after December 31, 2025 — an expenditure counts as made when installation is completed — and the Energy Efficient Home Improvement Credit (§25C) does not apply to property placed in service after December 31, 2025. Both remain available on a 2025 return (Form 5695) for qualifying work installed by December 31, 2025; nothing installed in 2026 qualifies. These are tax credits, not deductions, meaning they directly reduce your tax bill dollar-for-dollar.
Residential Clean Energy Credit
Of the cost of eligible systems
- • Solar panels and solar water heaters
- • Wind turbines
- • Geothermal heat pumps
- • Battery storage (3+ kWh)
- • Fuel cells
No annual maximum • Can carry forward unused credit
Energy Efficient Home Improvement Credit
Maximum annual credit
- • Heat pumps: up to $2,000
- • Insulation/windows/doors: up to $1,200
- • Energy audits: up to $150
- • Efficient HVAC: 30% up to limits
- • Heat-pump water heaters: up to $2,000 (other water heaters: $600)
Annual limit applied for 2023–2025 only; no credit for property placed in service after December 31, 2025
Capital Gains Exclusion When Selling
When you sell your primary residence, you may be able to exclude a significant amount of capital gains from your taxable income.
Requirements to Qualify
- Ownership test: You owned the home for at least 2 of the last 5 years
- Use test: You lived in the home as your primary residence for at least 2 of the last 5 years
- Look-back test: You have not excluded gain from another home sale in the past 2 years
Example
Sources & References
Primary references used for this content
Tax Information for Homeowners
Mortgage interest, property tax, and basis for homeowners
View on irs.gov
Mortgage Interest Statement
Deductible mortgage interest and points
View on irs.gov
Exclusion of gain from sale of principal residence
The $250k/$500k home-sale exclusion
View on law.cornell.edu
✓3 primary sources; links re-checked on a weekly rotation by the source watcher