Does Buying a House Give You a Tax Break? Mortgage, SALT, Gains

Buying a home can lower your federal tax bill, but the tax breaks for buying a house only pay off if your housing costs and other deductible expenses add up to more than the standard deduction. For 2026, that threshold is $16,100 for single filers and $32,200 for married couples filing jointly.1Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments From the One, Big, Beautiful Bill Clear that bar by itemizing, and you can deduct mortgage interest, property taxes, points, and mortgage insurance. Stay below it, and your home costs give you nothing extra that year. The biggest break of all comes later, when you sell.

The Standard Deduction Decides Whether Any of This Helps

Federal law gives you a choice each year: take the flat standard deduction or itemize your qualifying expenses on Schedule A. You get the larger of the two, not both.2Office of the Law Revision Counsel. 26 USC 63 – Taxable Income Defined The 2026 amounts are $16,100 for single filers or married filing separately, $32,200 for married filing jointly, and $24,150 for head of household.

Homeownership deductions only add value once they push you past your standard deduction. A married couple with $28,000 in combined mortgage interest, property taxes, and charitable gifts is still better off taking the $32,200 standard deduction, and their home costs deliver no federal tax benefit that year. This math surprises a lot of first-time buyers who expect a deduction the moment they close. Owners with larger mortgages, higher property taxes, or significant charitable giving are the ones who typically come out ahead by itemizing.

Mortgage Interest Deduction

If you itemize, mortgage interest is usually the largest line item. You can deduct interest on up to $750,000 of debt used to buy, build, or substantially improve your primary residence or a second home. The One Big Beautiful Bill Act made that $750,000 cap permanent.3Office of the Law Revision Counsel. 26 USC 163 – Interest Mortgages taken out before December 16, 2017 keep the older $1 million limit.

Only the interest portion of your payment counts. Principal, escrow deposits for insurance, and late fees are excluded. Your lender sends Form 1098 each January showing the interest you paid, and that figure goes on Schedule A.4Internal Revenue Service. Instructions for Form 1098

Home Equity Loans and HELOCs

Interest on a home equity loan or line of credit is deductible only if you used the money to buy, build, or substantially improve the home securing the loan. Use a HELOC to pay off credit cards or cover a vacation, and none of that interest qualifies. Your combined mortgage and home equity balance still has to stay within the $750,000 cap.5Internal Revenue Service. Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses)

Refinancing

When you refinance, interest on the new loan stays deductible as long as the balance doesn’t exceed what you owed on the original mortgage, plus any amount used for home improvements. Cash-out proceeds spent on non-housing purposes generate interest that isn’t deductible.

Property Taxes and the SALT Deduction

Local property taxes are deductible as part of the State and Local Tax deduction. For 2026, the SALT cap rose to $40,400 for single filers and married couples filing jointly, and $20,200 for married filing separately.6Office of the Law Revision Counsel. 26 USC 164 – Taxes That’s a large jump from the $10,000 limit that applied from 2018 through 2025, and it gives homeowners in high-tax areas real breathing room.

The cap covers your combined state and local income taxes (or sales taxes, if you elect that instead) plus real estate taxes. Pay $12,000 in property taxes and $20,000 in state income taxes, and your 2026 SALT deduction totals $32,000, comfortably under the limit.

Two limits are worth knowing. High earners see the $40,400 cap phase down once modified adjusted gross income exceeds $505,000, though it never drops below $10,000. And starting in 2030, the cap is scheduled to revert to $10,000 for everyone.6Office of the Law Revision Counsel. 26 USC 164 – Taxes

Points and Private Mortgage Insurance

Mortgage points, also called discount points or origination fees, are upfront charges expressed as a percentage of the loan. One point on a $400,000 mortgage costs $4,000. Points paid on a loan to purchase your primary home can generally be deducted in full the year you close, provided the loan is secured by your main home, points are customary in your area, and you didn’t borrow the money to pay them.7Internal Revenue Service. Topic No. 504, Home Mortgage Points

Points paid on a refinance work differently. You spread the deduction evenly over the life of the new loan. Refinance into a 30-year mortgage with $3,000 in points, and you deduct $100 per year.

Private mortgage insurance, which most lenders require when your down payment is under 20 percent, is again deductible starting in 2026. PMI premiums on acquisition debt are treated as deductible mortgage interest, and your lender reports the amounts on Form 1098.4Internal Revenue Service. Instructions for Form 1098

Home Office Deduction for the Self-Employed

If you’re self-employed or an independent contractor and use part of your home exclusively and regularly as your principal place of business, you can deduct a share of your housing costs. The IRS offers two methods:

W-2 employees cannot claim this deduction, even if they work from home full time. The Tax Cuts and Jobs Act eliminated the unreimbursed employee expense deduction starting in 2018, and the One Big Beautiful Bill Act made that change permanent.

The Capital Gains Exclusion When You Sell

The most valuable tax break tied to owning a home doesn’t arrive until you sell it. If you’ve owned and lived in the home for at least two of the five years before the sale, you can exclude up to $250,000 of profit from your income, or $500,000 if you’re married filing jointly. That excluded gain never appears on your return.10Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence

The two years don’t have to run consecutively. You could live in the house for 14 months, rent it out for two years, move back in for 10 months, and still qualify, as long as your total time living there adds up to 24 months within the five-year window. You can use the exclusion once every two years.

Gain above the exclusion is taxed at long-term capital gains rates, which for 2026 run 0, 15, or 20 percent depending on your income. Records of home improvements matter here, because those costs raise your tax basis and shrink the taxable gain. A $40,000 kitchen remodel or a $15,000 roof replacement both count. Keep receipts, contracts, and closing documents for as long as you own the home and for at least three years after you file the return for the sale year.

Residential Energy Credits Are Gone After 2025

Solar panels, heat pumps, and other qualifying home energy upgrades carried federal tax credits through 2025, but those credits no longer exist for new installations. The One Big Beautiful Bill Act terminated both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit for property placed in service after December 31, 2025.11Internal Revenue Service. FAQs for Modification of Sections 25C, 25D, 25E, 30C, 30D, 45L, 45W, and 179D Under Public Law 119-21 If you installed qualifying equipment before that deadline and haven’t yet claimed the credit, you can still do so on your 2025 return using Form 5695. Anything installed in 2026 or later gets no federal residential energy credit.