Expert Guide on Tax Breaks for Homeowners
With tax season approaching, it’s once again that time of year to gather any important documents necessary for filing. As you prepare your taxes, identifying and maximizing your deductions can help reduce your tax burden—and leave more room in your annual budget for home improvements or repairs.
We’ve compiled the following guide to educate homeowners on the deductions they can apply for as they prepare their 2024 taxes. In addition to scouring through Internal Revenue Service (IRS) resources, we’ve asked several experts to join the conversation and provide their insight regarding tax breaks for homeowners.
Are there any changes to homeowner tax deductions in 2025?
- “There are not any significant changes to tax deductions in 2025. However, with President Trump taking office on January 20 and the fact that both the House and Senate are controlled by Republicans, we are likely to see changes in our tax laws as they are quite partisan. In addition, the Tax Cuts and Jobs Act is scheduled to sunset at the end of 2025.” — Vada Waters Lindsey, Professor of Law at Marquette University
Itemized Deductions vs. Standard Deduction
When filing taxes, taxpayers must choose between standard and itemized deductions. For most filers, the standard deduction offers more benefits and requires less paperwork. The IRS sets the standard deduction each year, increasing or decreasing it to account for inflation.
Some taxpayers can claim a greater tax deduction amount by itemizing eligible expenses, while others must itemize expenses instead of taking the standard deduction. Schedule A (Form 1040) lists the type and amount of expenses filers wish to deduct. For example, self-employed taxpayers can use Schedule A to list deductions corresponding to business-related expenses.
The table below describes the main differences between standard and itemized deductions:
| Standard Deduction | Itemized Deductions | |
|---|---|---|
| Type of Deduction | Fixed dollar amount | Variable depending on taxpayer expenses eligible for deduction |
| Amounts (2024 Tax Year) | $14,600 (Single)$29,200 (Married filing jointly) | Varies by taxpayer |
| Best For | Most taxpayers, including those who aren’t homeowners | Taxpayers who own a home, live in states with high taxes, or must itemize |
| Documentation Required | None | Schedule A |
| Optimal Use | Itemized deductions fall short of the standard deduction | Itemized deductions exceed the standard deduction |
As you can see from the table above, homeowners can benefit from itemizing their deductions instead of taking the standard deduction. However, knowing which type of deductions they’re eligible for can prove challenging. The next section shares valuable deductions homeowners can leverage to reduce their tax burdens.
What Are Some of the Most Critical Deductions?
Homeowners can leverage tax deductions based on mortgage interest, state and local taxes, and property taxes paid. However, these itemized deductions require extra steps to calculate and report, including additional submitted forms. Explore the following deductions to determine which apply to you.
Mortgage Interest
When you make your mortgage payment, a portion of it goes toward the interest paid on your home loan. “Deductions on federal and state tax returns for mortgage interest payments are the largest tax breaks available to most homeowners,” says William F. Shughart II, research advisor and senior fellow of the Independent Institute at Utah State University.
Mortgage interest is deductible up to a limit, depending on when you took out the mortgage on your current home:
- On or after December 16, 2017: Deduct interest on a mortgage of up to $750,000, or up to $375,000 if you’re married filing separately.
- Between October 14, 1987, and December 15, 2017: Deduct interest on a mortgage of up to $1 million, or $500,000 if you’re married filing separately.
- On or before October 13, 1987: Deduct mortgage interest with no limit.
“Make sure that you get the information from your mortgage lender on the amount of interest you paid as well as the property taxes paid,” says Blaine G. Saito, assistant professor of law at Ohio State University. Your mortgage lender will send you a copy of Form 1098, which details the interest you’ve paid in the previous calendar year. Use the information in this form to deduct your mortgage interest accurately.
State and Local Tax
State and local real estate taxes are typically assessed at the closing of a home sale, either directly to a taxing authority or via an escrow account. You can deduct the amount of real estate tax you’re responsible for based on when you legally took ownership of the home, beginning on the date of sale. It’s assumed you and the seller paid your appropriate share, even if circumstances were otherwise.
“For homeowners, the two key tax breaks are the mortgage interest deduction and the state and local tax deduction, which allows a deduction for property taxes (up to a capped amount),” says Saito. Homeowners filing as single can deduct up to $10,000 in combination with property taxes, while married homeowners filing separately can deduct up to $5,000. Record these itemized deductions on Schedule A, line 5b.
Property Taxes
States assess property taxes at varying rates. “Property taxes, normally assessed at the county level, can also be deducted when computing an individual’s federal taxable income,” says Shughart II. Homeowners can deduct up to $10,000—or up to $5,000 if they are married and filing separately—of their property taxes and state and local taxes combined.
The following chart indicates effective tax rates—how much homeowners paid on average in property taxes in relation to their home values—as of 2022, per Tax Foundation:
| State | Effective Tax Rate 2022 |
|---|---|
| New Jersey | 2.08% |
| Illinois | 1.95% |
| Connecticut | 1.78% |
| New Hampshire | 1.61% |
| Vermont | 1.56% |
| New York | 1.54% |
| Texas | 1.47% |
| Nebraska | 1.44% |
| Iowa | 1.40% |
| Wisconsin | 1.38% |
| Ohio | 1.30% |
| Kansas | 1.26% |
| Pennsylvania | 1.26% |
| Michigan | 1.24% |
| Rhode Island | 1.23% |
| Alaska | 1.07% |
| Massachusetts | 1.04% |
| South Dakota | 1.01% |
| Minnesota | 0.98% |
| North Dakota | 0.97% |
| Maine | 0.96% |
| Maryland | 0.95% |
| Missouri | 0.82% |
| Oregon | 0.77% |
| Oklahoma | 0.76% |
| Washington | 0.76% |
| Kentucky | 0.74% |
| Georgia | 0.72% |
| Virginia | 0.72% |
| Florida | 0.71% |
| Indiana | 0.71% |
| Mississippi | 0.70% |
| Montana | 0.69% |
| California | 0.68% |
| New Mexico | 0.67% |
| North Carolina | 0.63% |
| District of Columbia | 0.57% |
| West Virginia | 0.55% |
| Wyoming | 0.55% |
| Arkansas | 0.53% |
| Louisiana | 0.51% |
| Delaware | 0.48% |
| Tennessee | 0.48% |
| Idaho | 0.47% |
| Utah | 0.47% |
| South Carolina | 0.46% |
| Arizona | 0.45% |
| Colorado | 0.45% |
| Nevada | 0.44% |
| Alabama | 0.36% |
| Hawaii | 0.26% |
More than one-third (18 states) of the United States had an effective tax rate above 1%. These states have the highest effective tax rate as of 2022:
- New Jersey: 2.08%
- Illinois: 1.95%
- Connecticut: 1.78%
- New Hampshire: 1.61%
- Vermont: 1.56%
Hawaii had the lowest effective tax rate in the nation, at 0.26%. The five states with the lowest effective tax rate were all 0.45% or lower. Alabama (0.36%) was second lowest, Nevada (0.44%) was third lowest, and Colorado and Arizona tied for fourth lowest (0.45%).
Other Deductions for Homeowners
You can tap into additional tax deductions through capital gains and programs aimed at rewarding homeowners for energy-efficient improvements. Whether home improvements are tax-deductible depends. Upgrades that improve energy efficiency offer immediate tax deductions. Large-scale repair projects can potentially fetch a higher sales price.
If you use part of your home exclusively for business, you may also qualify for tax breaks. “Taxpayers who have home offices can also benefit from deductions for depreciation and utility costs associated with that space, but the rules here are stringent,” says Edward Morse, professor of law at Creighton University.
Capital Gains
Eligible homeowners can exclude up to $250,000—or up to $500,000 for married couples filing jointly—of capital gains realized after selling their homes. “This exclusion not only incentivizes growing the value of one’s own home, but it also facilitates movement from one home to another,” says Morse, “Moving to another city to take a better job, or moving to a more desirable neighborhood that one could not previously afford, are possible when there is not a tax cost imposed on selling a home that has appreciated.”
To determine your exact capital gain, subtract any selling expenses from the home’s sale price and then subtract the adjusted basis from that amount. Homeowners must meet the following eligibility requirements to qualify for the full capital gains exclusion:
- You must have owned the home for at least 24 months out of the five years prior to the home’s sale date.
- You must occupy the home as a primary residence for at least 24 months (non-consecutive occupation counts) in the five years prior to the home’s date of sale.
- You cannot have taken the capital gains exclusion within the last two years.
Homeowners who don’t meet these requirements can qualify for a partial exclusion, depending on their circumstances. If you realized a capital gain from the sale of your home or received a 1099-S, you must complete Form 8949 Sales and Other Dispositions of Capital Assets and Schedule D.
Residential Clean Energy Credit
Homeowners can claim the Renewable Clean Energy Credit for installing new clean energy equipment such as the following:
- Battery storage technology with a capacity of at least 3 kilowatt hours
- Fuel cells
- Geothermal heat pumps that meet Energy Star requirements for the year they were purchased
- Solar electric panels
- Solar water heaters certified by Solar Rating Certification Corporation or a similar entity endorsed by your home state
- Wind turbines
You can claim the Renewable Clean Energy Credit every year you install clean energy property using Form 5695 Residential Energy Credits. Any credit you receive cannot exceed the tax amount due. However, you can carry any excess credit forward to apply toward future taxes.
To qualify for the Renewable Clean Energy Credit, the following restrictions apply:
- You must live in the home at least part-time.
- You can claim up to 30% of the costs involved in installing clean energy equipment.
- Eligible costs include assembly and installation.
- You can claim up to $500 for each half-kilowatt of fuel cell capacity for homes with a single occupant.
- For residences with more than one occupant, the combined credit cannot exceed $1,667 for each half-kilowatt of fuel cell capacity.
- You can claim the full tax credit if you use 20% or less of your home for business.
- If you use more than 20% of your home solely for business purposes, the credit you claim can only include the share of expenses that apply to the portion of the home not used for business.
Any tax credit you’re eligible for is reduced by any received public utility subsidies or purchase-price adjustments, such as rebates. Utility payments you receive for clean energy sold back to the grid don’t reduce your eligible credit, and the same applies to state home energy efficiency incentive programs unless they’re also considered a rebate or purchase price adjustment by federal income tax law.
Energy Efficient Home Improvement Credit
Homeowners who make energy-efficient upgrades to their homes can claim either the Energy Efficient Home Improvement Credit or the Residential Clean Energy Credit in a single tax year. You can claim up to 30% of qualified expenses or up to $3,200 for any improvements made after January 1, 2023. The table below summarizes how the maximum amount is divvied up according to the IRS:
| Energy Efficient Property | Restrictions | Deductions |
|---|---|---|
| Biomass stoves or boilers | Must have a thermal efficiency rating of 75% or more | $2,000 maximum |
| Exterior doors | Must meet Energy Star requirements | $250 per door $500 maximum |
| Exterior windows and skylights | Must meet Energy Star’s Most Efficient certification requirements | $600 maximum |
| Heat pumps | Must meet Consortium for Energy Efficiency | $2,000 maximum |
| Home energy audits | Requires a written report that includes an estimate of cost savings due to upgrades and the home energy auditor’s name, EIN, and proof of certification | $150 maximum |
| Insulation and air sealing systems/materials | Must meet International Energy Conservation Code standards from two years prior to installation date | $1,200 maximum |
| Water heaters | Must meet Consortium for Energy Efficiency | $600 maximum |
Use Form 5695 Residential Energy Credits Part II to claim any capital gains exclusions you’re entitled to. Any energy-efficient improvements must be made to your existing home. While there’s no lifetime dollar limit, you can’t receive more back than you owe in taxes, and you must subtract any public utility subsidies, rebates, and purchase-price adjustments.
Home Office Expenses
If you’re self-employed and use a portion of your home exclusively for business, you may be entitled to business-related deductions. Form 8829 helps calculate any home office deductions you can claim. Self-employed taxpayers can select between two deduction methods:
- Simplified method: Calculate $5 per square foot, up to $1,500 and 300 square feet.
- Regular method: Using this method requires identifying and itemizing business-related expenses based on the percentage of the home used exclusively for business purposes, either indirectly or directly.
Homeowners who are employed by a third party but work from home aren’t eligible to deduct home office expenses.
Homeowners can’t deduct the following items:
- Depreciation
- Forfeited deposits, down payments, or earnest money
- Homeowners’ association fees, condominium association fees, or common charges
- Home repairs
- Insurance including fire and comprehensive coverage and title insurance
- Internet or Wi-Fi system or service
- Most settlement or closing costs
- The amount applied to reduce the principal of the mortgage
- The cost of utilities, such as gas, electricity, or water
- Wages paid to domestic help
How Can Homeowners Get the Most Out of Their Deductions?
Exploring the tax deductions available to homeowners can help you identify those that apply based on your circumstances. “Keeping good records and using a competent tax professional to help prepare your return are two of the most important ways to ensure that tax benefits are maximized,” says Morse. The more meticulous records you keep, the easier it is to determine what deductions you may be eligible for.
In addition, homeowners paying a higher interest rate on their mortgage loans may find tax deductions exceptionally beneficial for lightening their tax burden—and leaving more room in their budgets for mortgage payments. Even though these homeowners are paying more for their properties, “as more taxpayers take on loans at rates above 5% (post-2022 rate increases), it will become more likely that their interest charges may push them above the standard deduction level,” says Terry Fields, associate professor of management at the University of Alaska Anchorage.
Expert Tips for Filing Your Taxes in 2025
Regardless of the tax deductions you’re eligible for, be careful whose guidance you accept. “The best advice I can offer to homeowners and all taxpayers is this: Do not rely on social media or Google as your tax professional,” says Sakinah Tillman, assistant professor at the University of District of Columbia David A. Clarke School of Law. It doesn’t hurt to ask a tax professional about what you’ve seen or heard on the interwebs, but like anything on the internet, it’s worth taking it with a grain of salt.
There’s also no shame in admitting you know nothing about taxes—or care to. “Save your time and effort for do-it-yourself projects,” says Morse. Balance the time you’d spend poring over restrictions and complex definitions with paying an expert to do it right the first time.
“If you are low-income and unable to hire a tax professional, there are free resources available to help,” says Tillman. Check out the IRS Direct File tool and the Volunteer Income Tax Assistance (VITA) Program for more details.
Expert Insights and Tips
Make sure you understand the documents and information needed for tax preparation. Ask questions, do not assume you have all the answers. That is what professionals are there for.
If you are low-income and unable to hire a tax professional, there are free resources available to help:
1. IRS Direct File: This service allows you to file your tax return for free directly with the IRS. Check your eligibility here: IRS Direct File for Free.
2. Volunteer Income Tax Assistance (VITA) Program: This program provides free tax preparation assistance and may be available in your local area. Similar programs can also assist with free tax preparation.
Taking advantage of these trusted and reliable resources will ensure that your taxes are prepared accurately.
One thing to also note is that home equity loan interest has no longer been deductible as an itemized deduction since 2017. Only so-called acquisition indebtedness counts. Additionally, on mortgage interest, there is a $750,000 ceiling on the size of the loan. To get the tax benefit, you may want to consider how you can keep things within the range of acquisition indebtedness, like cashing out in a refinancing situation. Before undertaking such moves, you should, of course, talk to a financial advisor.
The other major tax break to keep in mind is that a certain amount on the gain on the sale of a primary residence is excluded from income, on the order of $250,000 for a single person or $500,000 for those married who file jointly.
Since 2025 will be a landmark year for tax matters, I would carefully watch these tax provisions to see what will happen.
Property taxes, which primarily fund public K–12 schools and a lengthening list of other local public services (such as firefighting, 911 call centers, and so on), have been rising nationwide in recent years. Some states offer property tax relief for certain categories of homeowners (veterans, active-duty military personnel, seniors, etc.). Homeowners should determine if they are eligible to apply for such relief. Eligibility and the conditions under which it is granted vary from state to state.
In some states, a homestead exemption provides property tax relief for owner-occupied primary residences. The exemption’s value varies across states and is not available everywhere.
Itemized deductions: Itemized deductions for mortgage interest and property taxes can potentially reduce taxable income for those homeowners with sufficient deductible expenses. For mortgage interest on homes acquired after December 15, 2017, the deduction extends to interest on up to $750,000 in mortgage debt used to acquire the home or to make substantial improvements. Earlier mortgages benefit from more generous grandfather rules. This benefit also extends to the taxpayer’s principal residence and a second home—which can include an RV or even a boat that includes proper living quarters. Taxpayers who finance other personal items—such as a car—are not entitled to deduct their interest.
Property taxes are another itemized deduction for homeowners. However, after 2017, those property taxes are subject to a cap of $10,000, which includes the taxpayer’s total state and local taxes.
After the Tax Cuts and Jobs Act raised the standard deduction beginning in 2018, fewer taxpayers benefit from these itemized deductions. In 2025, the standard deduction is $30,000 (married) and $15,000 (single), which means that homeowners receive tax benefits from itemized deductions only when the total deductions exceed the standard deduction. Many taxpayers will find that these incentives do not significantly improve their ability to acquire a home. But bear in mind that the higher standard deductions expire in 2026 unless Congress acts to renew them. The $10,000 cap on state and local tax deductions also expires. Watch and see what happens in the future.
Exclusion from gain on a sale of a principal residence: Homeowners also get another benefit in the form of an exclusion from taxable income for gains from selling their home. A homeowner may exclude up to $500,000 (married) and $250,000 (single) in gains from selling a principal residence. Limitations can reduce the amount of the exclusion, which depends on the amount of time the owner used the home as a principal residence and whether the home had ever been treated as a rental property. This exclusion not only incentivizes growing the value of one’s own home, but it also facilitates movement from one home to another. Moving to another city to take a better job, or moving to a more desirable neighborhood that one could not previously afford, are possible when there is not a tax cost imposed on selling a home that has appreciated.
Caveat: Markets don’t always rise. Homeowners should also realize that there can be a downside to home ownership. If one’s home declines in value, the homeowner may not deduct a loss resulting from its sale from taxable income. In this sense, a homeowner is treated worse than other taxpayers who invest in other types of assets, such as stocks or rental real estate. Sales of personal assets, such as a home or car, can generate taxable income if they appreciate, but if they decline in value, their sale cannot generate tax benefits from losses. One may think of a home as an investment (and apart from retirement assets, it is the largest asset held by many taxpayers), but if losses are incurred, you must pay for the decline with after-tax dollars. If those losses are financed by debt, you may face additional tax consequences from discharge of indebtedness. Current law allows relief for a principal residence, but that rule is also subject to change. Remember, not all markets rise. Buying a home entails risks, particularly if you finance the purchase through debt. Don’t take on more risk than you can handle. And for most taxpayers in most situations, there may well be better investments than buying more house than you need.
Other benefits: Finally, homeowners can benefit from an exclusion from gross income if they choose to rent their home for 14 days or less per year. This exclusion, which is found in section 280A of the Code, is sometimes referred to as the “Augusta Rule” as it benefitted those who rented their homes to professional golfers or tourists during the Masters golf tournament. You don’t get a similar exclusion for renting out other personal assets.
Taxpayers who have home offices can also benefit from deductions for depreciation and utility costs associated with that space, but the rules here are stringent. Tread carefully.