Margin notes
- Mortgage interest is generally deductible on the first $750,000 of home acquisition debt ($375,000 married filing separately) taken out after December 15, 2017.
- You may exclude up to $250,000 of gain on the sale of a main home, or $500,000 on a joint return, if you meet the ownership and use tests.
- The Energy Efficient Home Improvement Credit is not allowed for property placed in service after December 31, 2025, the IRS says.
Owning a home is often described as a tax shelter. For many owners today, the yearly tax benefit is smaller than they assume, because most of it only counts if you itemize. The biggest break comes at the end, when you sell. Here is how the pieces fit in 2026.
The itemizing question comes first
Mortgage interest and property taxes are itemized deductions. You only benefit from them if your total itemized deductions are larger than the standard deduction, which for 2026 is $16,100 for single filers and $32,200 for married couples filing jointly. A couple paying $10,000 in mortgage interest and $6,000 in property tax, with $4,000 in state income tax, reaches $20,000, still below the joint standard deduction. Run the numbers using Standard vs Itemized Deductions: How to Choose for 2026 before counting on these breaks.
Mortgage interest
IRS Publication 936 says you can deduct home mortgage interest on the first $750,000 of home acquisition debt, or $375,000 if married filing separately. Acquisition debt means mortgages taken out to buy, build or substantially improve your home. Older mortgages taken out on or before December 15, 2017 fall under the earlier limit of $1 million ($500,000 married filing separately). Points paid by the buyer can be deductible too, according to IRS Topic 505.
Property taxes and the SALT cap
Real property taxes are deductible if they are levied for the general public welfare at a uniform rate on property in the area, IRS Topic 503 explains. They share a cap with state and local income or sales taxes. Under the 2025 law, Topic 503 describes that combined limit as $40,000 ($20,000 married filing separately), reduced at higher incomes but not below $10,000. Check the Schedule A instructions for the year you file.
Not every line on a property tax bill counts. Topic 503 lists items you cannot deduct, including transfer taxes on the sale of property, service charges for water, sewer or trash collection, and taxes for local benefits, unless they are for maintenance, repair or interest.
Tip: Lowering the assessment itself saves money whether or not you itemize. If your home’s assessed value looks too high, an appeal can cut the bill directly; see How to Appeal Your Property Tax Assessment.
The home sale exclusion
This is the largest tax break most homeowners will ever use. IRS Topic 701 says that if you have a gain from selling your main home, you may exclude up to $250,000 of it from income, or up to $500,000 on a joint return with your spouse. To qualify you must meet two tests during the five years before the sale:
- Ownership test: you or your spouse owned the home for at least 24 months.
- Use test: you used it as your residence for at least 24 months. On a joint return, both spouses must meet the use test.
- The two-year periods do not have to be the same, but both must fall within the five years ending on the date of sale.
Members of the uniformed services, the Foreign Service and the intelligence community on qualified extended duty may suspend the five-year period for up to 10 years. If you receive Form 1099-S, or cannot exclude all of the gain, you must report the sale on Schedule D and Form 8949. Gains above the exclusion are taxed as capital gains; see Capital Gains Tax Basics: Short-Term, Long-Term and the 0% Rate.
Tip: Keep records of improvements such as a new roof or an addition for as long as you own the home. Improvements generally add to your basis, which lowers the gain when you sell. IRS Publication 523 includes worksheets for figuring basis and gain.
Home office
If you are self-employed and use part of your home regularly and exclusively for business, you may deduct the business share of home expenses, or use the simplified method of $5 per square foot up to 300 square feet. The deduction is available to renters and owners. Details are in Self-Employed Tax Deductions: What Freelancers and Side Businesses Can Claim.
Energy credits have ended
Homeowners who planned on federal credits for efficiency upgrades should note the 2025 law’s changes. The IRS says the Energy Efficient Home Improvement Credit is not allowed for property placed in service after December 31, 2025, and the Residential Clean Energy Credit is not allowed for expenditures made after December 31, 2025. Some state and utility programs may still offer incentives; check locally.
What owners can do each year
- Compare itemized deductions with the standard deduction every year.
- Keep Form 1098 from your lender and every property tax bill and receipt.
- Check your assessment notice for errors and appeal if the value is too high.
- Log improvements and keep receipts until years after you sell.
The home sale exclusion is one of the strategies in How the Wealthy Reduce Taxes Legally, and the Versions You Can Use. For questions about a specific sale, refinancing or a home used partly for business, a tax professional can apply the rules to your case.