Owning a home comes with plenty of expenses, but here’s some relief: many of those costs can actually lower your tax bill. The challenge? Knowing which expenses count as deductions and which ones you’re stuck paying out of pocket.

The rules changed significantly in recent years, and many homeowners are still confused about what they can and can’t claim. Let’s clear that up and make sure you’re not leaving money on the table – or accidentally claiming something that could get you in trouble.

The Big Picture: How Homeowner Tax Benefits Work

Your house can help reduce your taxes in two main ways: deductions that lower your taxable income now, and credits that reduce your tax bill dollar-for-dollar. Most homeowner benefits fall into the deduction category, which means they save you money based on your tax bracket.

Here’s how it works: If you’re in the 22% tax bracket and claim $10,000 in deductible home expenses, you’ll save about $2,200 on your taxes. Someone in the 12% bracket would save $1,200 on that same $10,000 deduction.

The catch? You have to itemize your deductions instead of taking the standard deduction to claim most homeowner benefits. For 2025, the standard deduction is $15,000 for single filers and $30,000 for married couples filing jointly. Your itemized deductions need to exceed these amounts to make itemizing worthwhile.

Mortgage Interest: Your Biggest Tax Break

The Deduction That Actually Matters

Mortgage interest is usually a homeowner’s largest tax deduction. You can deduct interest on up to $750,000 of mortgage debt if you bought your home after December 15, 2017. Bought before that date? You can deduct interest on up to $1 million in mortgage debt.

Real example: Your mortgage balance is $400,000 at 6.5% interest. You’ll pay about $26,000 in interest this year, and every penny is deductible. In the 22% tax bracket, that saves you roughly $5,720 on your taxes.

Home Equity Loans and Lines of Credit

You can also deduct interest on home equity debt, but only if you used the money to buy, build, or substantially improve your home. Borrowed $50,000 against your home equity to renovate your kitchen? That interest is deductible. Used it to pay for your kid’s college or buy a boat? Not deductible.

What counts as “substantial improvement”: Adding a room, renovating a kitchen or bathroom, installing a new roof, or adding central air conditioning. Routine maintenance like painting or fixing a leaky faucet doesn’t qualify.

Property Taxes: What You Can Actually Deduct

You can deduct state and local property taxes, but there’s a cap. The total deduction for all state and local taxes (including property taxes, state income taxes, and sales taxes) is limited to $10,000 per year, or $5,000 if you’re married filing separately.

Strategy tip: If your property taxes are due in December but you won’t exceed the $10,000 limit, consider paying early to claim the deduction this year. Just make sure the payment actually gets processed before December 31st.

Watch out for: Special assessments for local improvements like new sidewalks or sewer systems. These usually aren’t deductible as property taxes, but they do increase your home’s “basis” for when you eventually sell.

Home Office Deduction: Proceed with Caution

The home office deduction can save serious money, but the IRS scrutinizes these claims carefully. You must use the space exclusively and regularly for business – no claiming your kitchen table where you occasionally work from home.

Two Ways to Calculate It

Simplified method: Deduct $5 per square foot of office space, up to 300 square feet maximum. So a 200-square-foot home office gets you a $1,000 deduction.

Actual expense method: Calculate what percentage of your home is used for business, then deduct that percentage of your home expenses (mortgage interest, property taxes, utilities, repairs). A 200-square-foot office in a 2,000-square-foot home = 10% of your home expenses.

Which is better? Run the numbers both ways. The actual expense method usually gives bigger deductions but requires more record-keeping and can complicate things when you sell your home.

Energy Efficiency Credits: Money Back in Your Pocket

Unlike deductions, tax credits reduce your tax bill dollar-for-dollar. Several energy efficiency improvements qualify for credits through 2032:

30% credit (no limit) for:

• Solar panels
• Solar water heaters
• Geothermal heat pumps
• Small wind turbines

30% credit (up to specific limits) for:

• Heat pumps ($2,000 limit)
• Central air conditioning ($600 limit)
• Water heaters ($2,000 limit)
• Insulation and air sealing ($1,200 limit)

Real example: Install a $20,000 solar panel system and get a $6,000 credit. Install a $3,000 heat pump and get a $2,000 credit (hitting the limit).

Important: These are credits for the year you place the equipment in service, not when you pay for it. Order solar panels in December but they’re installed in January? The credit goes on next year’s return.

What Homeowners Can’t Deduct (But Think They Can)

Homeowners Insurance

Regular homeowners insurance premiums aren’t deductible, even though they’re required by your mortgage company. The only exception is if you have a home office and can deduct the business portion.

HOA Fees and Most Repairs

Homeowners association fees, regular maintenance, and routine repairs don’t qualify for deductions. Fixing a broken furnace, repainting rooms, or replacing worn carpet are just part of owning a home.

Exception: If you have a home office, you can deduct the business percentage of these expenses.

Closing Costs (Mostly)

Most closing costs when you buy a home aren’t immediately deductible. Instead, they get added to your home’s “basis,” which can reduce capital gains when you sell. Points paid to get your mortgage do qualify for immediate deduction.

Record-Keeping That Actually Matters

Save These Documents Forever

• Original purchase documents and closing statements
• Records of all home improvements (not repairs)
• Annual mortgage interest statements (Form 1098)
• Property tax bills and payment records

Why This Matters for Your Future

When you sell your home, you can exclude up to $250,000 in capital gains ($500,000 for married couples) if it was your main home for at least two of the past five years. But improvements to your home increase its “basis,” reducing the gain you’ll owe taxes on.

Real example: Buy a home for $300,000, spend $100,000 on improvements over 15 years, then sell for $600,000. Without improvement records, you’d owe capital gains tax on $300,000 ($600,000 – $300,000). With proper records, you only owe gains tax on $200,000 ($600,000 – $300,000 – $100,000), potentially saving you $15,000+ in taxes.

Smart Strategies for Next Year

Timing Your Improvements

If you’re planning major improvements, consider the timing. Energy efficiency improvements might qualify for tax credits, while other improvements only help when you sell. Spreading improvements across tax years can help if you’re hitting credit limits.

Bundling Deductions

If your itemized deductions are close to the standard deduction amount, consider “bundling” expenses into one year. Pay two years’ worth of property taxes in one year, or make your January mortgage payment in December to increase your deductible interest.

Keep Separate Records for Business Use

If you work from home, keep detailed records of business-related home expenses. Even a small home office can create significant deductions when you add up the business portion of utilities, insurance, repairs, and mortgage interest.

When to Get Professional Help

Consider hiring a tax professional if you have:

• A home office with significant income
• Major energy efficiency improvements
• Rental property or Airbnb income from your home
• Complicated ownership situations (multiple properties, recent divorce)
• Questions about improvement vs. repair classifications

Most homeowners with straightforward situations can handle these deductions using tax software, but complex situations benefit from professional guidance.

Don’t let the fear of making mistakes prevent you from claiming legitimate deductions. The key is keeping good records and being honest about what qualifies. Your home is likely your biggest investment – make sure it’s working to reduce your tax bill too.

Key Takeaways • Mortgage interest and property taxes are your biggest homeowner deductions, but you must itemize to claim them

• Home office deductions require exclusive business use and careful record-keeping to avoid audit risk

• Energy efficiency improvements can provide dollar-for-dollar tax credits through 2032

• Keep improvement records forever – they reduce capital gains taxes when you sell

• Time major expenses strategically and consider bundling deductions to maximize tax benefits