Owning a home comes with big expenses, but it also comes with valuable tax breaks that can save you thousands. If you know what to deduct, you can keep more money in your pocket. Here are six tax benefits every homeowner should be aware of.
1. Mortgage Interest Deduction
If you itemize your deductions, you can deduct the interest you pay on your mortgage—one of the biggest tax breaks for homeowners.
You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). If you took out your mortgage before December 16, 2017, the limit is $1 million. You may also be able to deduct points paid on your mortgage, as long as certain conditions are met (e.g., it’s your primary residence, the loan is secured, and you itemize your deductions). Many homeowners miss out on deducting points, so be sure to check your closing documents.
If you have a mortgage, don’t overlook this deduction—it’s one of the biggest tax savings available.
2. Property Tax Deduction
You can deduct up to $10,000 ($5,000 if married filing separately) of state and local property taxes paid on your home.
This deduction is part of the state and local tax (SALT) deduction, which includes both property taxes and either state income or sales taxes. However, only about 10% of taxpayers claim this deduction since most take the standard deduction. There are discussions about increasing the cap to $20,000 for married couples in 2025, so this may change in the near future.
If you itemize, deducting property taxes can provide significant savings.
3. Home Improvements and Capital Gains Impact
While home improvements aren’t directly deductible, they increase your home’s cost basis, reducing capital gains taxes when you sell.
Repairs like fixing a leaky faucet don’t count, but improvements—such as a new roof, updated kitchen, or an addition—do. Since these costs reduce your taxable profit when you sell, keeping detailed records is crucial. Store receipts and invoices in a digital folder (like Google Drive) so you have proof when needed.
Tracking home improvements can lead to significant tax savings in the long run.
4. Taxes When Selling Your House
When you sell your home, you only pay taxes on the profit, not the full sale price. Here’s how to calculate your taxable gain:
| Calculation Step | Example Amount ($) | Description |
| Selling Price | 600,000 | Final sale price of the home |
| – Selling Costs | (30,000) | Includes realtor fees, staging, closing costs |
| – Adjusted Cost Basis | (350,000) | Purchase price + capital improvements + original closing costs |
| = Gain/Loss on Sale | 220,000 | This is your taxable gain before exclusions |
Keeping records of your purchase price, improvements, and closing costs can lower your taxable gain when you sell.
5. Capital Gains Exclusion
You may be able to exclude up to $250,000 ($500,000 for married couples) of profit from the sale of your primary home if you meet specific criteria.
- Ownership: You must have owned the home for at least 24 months in the past 5 years (only one spouse needs to meet this requirement if married).
- Residence: You must have lived in the home for at least 24 non-consecutive months in the past 5 years (both spouses must meet this requirement).
- Look-back Rule: You can’t have used this exclusion for another home sale within the past 2 years.
There are also partial exclusions for special circumstances, such as job relocations (50+ miles away), health-related moves, and unforeseen events (e.g., divorce, casualty, financial hardship). Additionally, you can rent out a home for two years and still qualify, as long as you met the residence requirement before selling.
This exclusion can significantly reduce or eliminate your capital gains tax bill.
6. Tax Example: Selling a Home
Let’s see how tracking home improvements can impact taxes when selling a house:
| Scenario | With Improvement Records | Without Improvement Records |
| Sale Price | 600,000 | 600,000 |
| – Selling Costs | (30,000) | (30,000) |
| – Adjusted Basis | (350,000) (Includes $50K in improvements) | (300,000) (No improvement records) |
| = Total Gain | 220,000 | 270,000 |
| Exclusion | 250,000 | 250,000 |
| Taxable Gain | 0 (No taxes owed) | 20,000 (Tax owed on this amount) |
By keeping track of home improvements, you could avoid paying taxes on an extra $20,000 in gains.
Knowing and tracking these deductions can save homeowners thousands. Keep good records, stay informed about tax law changes, and make the most of these benefits!
Taxes can be tricky, and the last thing you want is an unexpected bill from the IRS. If you have questions or want to make sure you’re making the right financial moves, reach out to a qualified accounting professional. We also have trusted wealth partners who can help—just let us know, and we’d be happy to make the introduction!
