What Tax Deductions Can Homeowners Claim in 2026?

Homeownership offers substantial tax benefits that can save you thousands of dollars annually. Following major changes from the One Big Beautiful Bill Act (OBBBA), most homeowners can now deduct mortgage interest on loans up to $750,000 (now permanent) and property taxes up to $40,400 for 2026. Additionally, homeowners age 65 and older may qualify for a new $6,000 to $12,000 deduction. The exact amount you’ll save depends on your income level, mortgage balance, property location, and which deductions you qualify for.

Understanding these tax benefits helps you make informed decisions about home improvements, refinancing, and long-term financial planning. This guide breaks down the major federal tax reductions available to homeowners for the 2026 tax year, explains eligibility requirements, and shows you how to maximize your savings.

2026 Tax Changes at a Glance

• SALT Cap Increased: Deduct up to $40,400 in state/local taxes (up from $10,000)
• Standard Deduction: Now $16,100 (single) or $32,200 (married filing jointly)
• New Seniors Deduction: $6,000/$12,000 for homeowners age 65+ (through 2028)
• Mortgage Interest: The $750,000 limit is now permanent
• PMI Deductible: Private mortgage insurance deductible (phases out $100,000-$110,000 AGI)
• Home Equity: Interest deductible if used for home improvements (within $750,000 limit)
• Charitable Floor: Donations only deductible above 0.5% of AGI for itemizers
• Energy Credits Expired: Federal energy efficiency credits ended December 31, 2025

Comparison: Previous Law vs. OBBBA (2026)

How Much Mortgage Interest Can You Deduct in 2026?

Homeowners can deduct mortgage interest on loans up to $750,000. The OBBBA made this limit permanent for loans taken after December 15, 2017.

For mortgages originating before this date, the higher limit of $1 million still applies. If you’re married filing separately, the limits are $375,000 and $500,000 respectively.

Important 2026 Update: The OBBBA made the $750,000 mortgage interest deduction limit permanent. This limit was previously set to expire, reverting to $1 million, but is now locked in indefinitely.

This deduction applies to your primary residence and one additional property, such as a vacation home. The savings can be substantial in the early years of your mortgage when interest makes up the largest portion of your monthly payment. For example, on a $400,000 mortgage at 7% interest, you’ll pay roughly $27,500 in interest during the first year. If you’re in the 24% tax bracket, this deduction could save you about $6,600 on your tax bill.

What You Need to Claim This Deduction

• Form 1098 from your lender showing total interest paid
• Property must be secured by the home
• Must itemize deductions on Schedule A
• Itemized deductions must exceed standard deduction amounts

For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, so your itemized deductions need to exceed these amounts for the mortgage interest deduction to benefit you. Learn more about mortgage interest rules at IRS Publication 936.

Is PMI Tax Deductible in 2026?

Yes, private mortgage insurance is now treated as deductible mortgage interest under the OBBBA, with full deductions for AGI up to $100,000.

This change benefits homeowners who made down payments of less than 20% and are required to carry PMI on conventional loans. Previously, PMI deductibility had been inconsistent, with the provision repeatedly expiring and being renewed. The OBBBA now includes PMI associated with acquisition debt as part of the mortgage interest deduction.

PMI Deduction Income Limits

The PMI deduction is subject to income-based phase-out rules:
– Full deduction: AGI up to $100,000 ($50,000 if married filing separately)
– Phase-out range: AGI between $100,000 and $110,000
– No deduction: AGI above $110,000 ($55,000 if married filing separately)

The deduction reduces by 10% for each $1,000 (or fraction thereof) that your AGI exceeds $100,000.

Can You Deduct Home Equity Loan Interest?

Home equity loan interest is deductible only if the funds are used to buy, build, or substantially improve the home that secures the loan.

This continues the rule established under the Tax Cuts and Jobs Act.

Home Equity Loan Interest Deductibility Rules

Deductible when used for:

• Building an addition to your home
• Renovating your kitchen or bathroom
• Installing a new roof or HVAC system
• Other substantial home improvements

NOT deductible when used for:

• Paying off credit cards or other debt
• Buying a car
• Funding vacations or personal expenses
• College tuition or other non-home expenses

Important Limit: Your total mortgage debt (primary mortgage + home equity loan) cannot exceed $750,000 to qualify for the interest deduction. If your combined debt exceeds this limit, only a portion of the interest is deductible.

What Is the SALT Deduction Cap for 2026?

The SALT deduction cap increased to $40,400 for 2026, up from $10,000, though it phases down for incomes above $505,000 MAGI.

This represents a significant change under the OBBBA for tax years 2025 through 2029.

For married filing separately, the cap is $20,200 in 2026 ($20,000 in 2025).

Who Loses the Higher SALT Cap?

Taxpayers with MAGI above $505,000 see the $40,400 cap phase down by 30% of income over the threshold, bottoming out at $10,000.

This means taxpayers with MAGI over $606,000 see no benefit from the increased cap.

SALT Cap Phase-out Examples

• MAGI of $550,000: Cap reduced by $13,500 (30% × $45,000), leaving $26,900 deduction
• MAGI of $600,000: Cap reduced by $28,500 (30% × $95,000), leaving $11,900 deduction
• MAGI of $650,000: Cap is $10,000 (floor)

Homeowners in high-tax states such as New Jersey, New York, California, and Connecticut can now deduct a much larger portion of their actual property tax bills, provided their income falls below the phase-out thresholds.

Source: Tax Foundation

You can only deduct taxes that you actually paid during the tax year. If your lender collects property taxes through an escrow account, check your mortgage statement or Form 1098 to see what was paid on your behalf.

What You Can and Cannot Deduct

Deductible (subject to SALT cap):

• State and local property taxes
• State income taxes OR state sales taxes (whichever is higher)
• Taxes paid through escrow accounts
• Taxes paid directly to tax authority

Not Deductible:

• Charges for specific local benefits (sidewalks, water systems, sewer lines)
• Special assessments that increase property value
• Homeowners association (HOA) fees
• Transfer taxes or stamp taxes when purchasing

Learn more about SALT changes at Fidelity’s SALT Deduction Guide.

What Is the New Seniors’ Tax Deduction for 2026?

Homeowners age 65 and older can claim a new $6,000 to $12,000 deduction through 2028, regardless of whether they itemize or take the standard deduction.

This OBBBA provision is separate from the standard deduction and the additional standard deduction already available to seniors.

Key Features

• Available to individuals age 65 and older by the end of the tax year
• Can be claimed regardless of whether you itemize or take the standard deduction
• Reported on Schedule 1-A, functioning as an adjustment to income
• Unlike typical itemized deductions, this reduces your taxable income even if you take the standard deduction
• The deduction phases out at 6% of income above the threshold
• Available for tax years 2025 through 2028 only

Seniors’ Deduction Calculation Examples

Single filer, age 67, MAGI of $75,000:

• Full $6,000 deduction available

Single filer, age 67, MAGI of $85,000:

• Excess over threshold: $10,000
• Reduction: 6% × $10,000 = $600
• Deduction: $6,000 – $600 = $5,400

Married couple, both 67, MAGI of $175,000:

• Excess over threshold: $25,000
• Reduction: 6% × $25,000 = $1,500
• Deduction: $12,000 – $1,500 = $10,500

This deduction supplements but does not replace the existing additional standard deduction for seniors (which is $2,050 for single filers and $1,650 per qualifying spouse for married filers in 2026).

Learn more at AARP’s 2026 Tax Changes Guide.

Who Qualifies for the Home Office Deduction?

Only self-employed individuals, independent contractors, and business owners can claim the home office deduction. W-2 employees are not eligible.

The rules for the home office deduction remain unchanged from previous years. W-2 employees working from home, even if required by their employer, remain ineligible.

Who Can Claim the Home Office Deduction

Eligible:

• Self-employed individuals
• Independent contractors
• Business owners
• Freelancers and gig workers

Not Eligible:

• W-2 employees working from home
• Remote workers (unless self-employed)
• Employees with home office requirements from employer

To qualify, you must use a portion of your home regularly and exclusively for business. “Exclusive use” means the space is used only for business purposes, not as a spare bedroom that doubles as an office. “Regular use” means you conduct business activities there on a consistent basis. More details are available in IRS Publication 587.

How Do You Calculate the Home Office Deduction?

You can use the simplified method ($5 per square foot, up to $1,500) or the regular method based on actual expenses with no limit.

Regular Method Calculation Example:
– Annual mortgage interest: $15,000
– Property taxes: $6,000
– Utilities: $3,600
– Maintenance: $2,000
– Total eligible expenses: $26,600
– Home office is 10% of home
– Home office deduction: $2,660

Compare this to the simplified method: $1,000 ($5 × 200 square feet)

Choosing Your Method

Use Simplified Method if:

• You want minimal recordkeeping
• Your office is under 300 square feet
• You plan to sell your home soon (avoids depreciation recapture)

Use Regular Method if:

• Your actual expenses are high
• You have a large office space
• You maintain detailed records anyway
• You want to maximize deductions

Are Energy Tax Credits Still Available in 2026?

No. Both the Energy Efficient Home Improvement Credit (25C) and Residential Clean Energy Credit (25D) expired December 31, 2025.

Projects completed by the end of 2025 can still claim credits on 2025 tax returns filed in 2026.

What This Means for Homeowners

• Projects completed by December 31, 2025 can still claim credits on 2025 tax returns (filed in 2026)
• New energy-efficient upgrades in 2026 and beyond do not qualify for federal tax credits
• State and local incentives may still be available; check DSIRE for programs in your area
• Unused credits from 2025 installations can be carried forward to future tax years

If you completed qualifying energy improvements like solar panels, heat pumps, or energy-efficient windows by the end of 2025, you can still claim these credits. Use IRS Form 5695 when filing your 2025 tax return.

For more information on the credit termination, see the IRS FAQs on OBBBA Energy Credit Changes.

How Much Capital Gains Can You Exclude When Selling Your Home?

You can exclude up to $250,000 in capital gains ($500,000 for married couples) when selling your primary residence, tax-free.

This exclusion remains one of the most powerful tax breaks for homeowners and was not changed by the OBBBA.

What Are the Requirements for the Capital Gains Exclusion?

You must have owned and lived in the home as your primary residence for at least 2 of the 5 years before the sale.

To qualify, you must meet these conditions:

1. Owned the home for at least 2 of the 5 years before the sale
2. Lived in the home as your primary residence for at least 2 of the 5 years before the sale
3. Haven’t used the exclusion in the past 2 years on another home sale

These two years don’t need to be consecutive. If you lived in the home for 18 months, moved out and rented it for a year, then moved back for another six months before selling, you’d still meet the requirement.

Capital Gains Exclusion Calculation

Example Scenario:

• Purchase price: $300,000
• Capital improvements: $50,000
• Adjusted basis: $350,000
• Sale price: $600,000
• Capital gain: $250,000

Tax Savings:

• Single filer: $0 tax (gain equals $250,000 exclusion)
• Married joint filers: $0 tax (gain under $500,000 exclusion)
• Without exclusion: $37,500 tax (at 15% capital gains rate)

For detailed rules, see IRS Publication 523 on selling your home.

Are Home Improvements Tax Deductible?

Most home improvements aren’t immediately deductible, but capital improvements increase your cost basis and reduce capital gains when you sell.

Understanding the tax treatment of renovations helps with financial planning and long-term tax strategy. The IRS distinguishes between repairs (maintain current condition) and improvements (add value, prolong life, or adapt to new uses).

How Does Cost Basis Reduce Your Taxes?

Capital improvements add to your home’s cost basis, which lowers your taxable gain when you sell. This can potentially save thousands in capital gains tax.

Cost Basis Calculation Example

• Original purchase price: $300,000
• Capital improvements over time: $75,000
• Adjusted basis: $375,000

At Sale:

• Sale price: $500,000
• Adjusted basis: $375,000
• Taxable gain: $125,000 (not $200,000)

Tax Savings: Reduces taxable gain by $75,000, saving $11,250 in capital gains tax (at 15% rate)

Keep detailed records of all improvements with receipts, permits, and contractor invoices. These documents support your basis adjustments when you file taxes after selling your home. For married couples, a properly documented basis can help you stay under the $500,000 capital gains exclusion threshold.

What Qualifies as a Capital Improvement

Adds Value to Your Home:

• Kitchen remodeling
• Bathroom renovations
• Deck construction
• Swimming pool installation
• Landscaping improvements

Prolongs Useful Life:

• New roofing
• New siding
• HVAC system replacement
• New water heater
• Foundation repairs

Adapts to New Uses:

• Converting garage to living space
• Finishing a basement
• Adding a home office
• Installing central air conditioning

Can You Deduct Medical Home Modifications?

Yes, home modifications for medical purposes are deductible as medical expenses if you itemize and your total medical costs exceed 7.5% of AGI.

Accessibility improvements follow special tax rules that can provide significant savings for qualifying modifications.

Which Medical Modifications Are Fully Deductible?

Modifications that don’t increase home value (such as ramps, grab bars, and doorway widening) are fully deductible as medical expenses.

Full deduction (don’t typically increase home value):
– Installing entrance or exit ramps
– Grading land for wheelchair access
– Modifying stairs
– Adding handrails and grab bars throughout the home
– Modifying fire alarms and smoke detectors for visual or auditory impairments
– Widening doorways for wheelchair access (minimal value increase)

Partial deduction (may increase home value):
– Widening hallways
– Modifying cabinets and fixtures for accessibility
– Adjusting electrical outlets and fixtures
– Installing elevators or stair lifts
– Adding first-floor bathrooms

If the modification increases your home’s value, you must reduce the medical expense deduction by the amount of increased value. For example, if you spend $15,000 installing an elevator and it increases your home’s value by $10,000, you can only deduct $5,000 as a medical expense (subject to the 7.5% AGI threshold).

According to IRS Publication 502, modifications that don’t ordinarily increase the value of your home can be fully included in medical expenses.

Can You Deduct Disaster Damage to Your Home?

Yes, if your home suffers damage from a federally declared disaster, you can deduct losses that exceed insurance reimbursements and 10% of AGI.

The Tax Cuts and Jobs Act eliminated casualty loss deductions for most situations, but losses from federally declared disasters remain deductible.

How Do You Calculate a Disaster Loss Deduction?

Subtract insurance reimbursements, $100 per event, and 10% of your AGI from the decrease in fair market value to find your deductible loss.

Follow these steps to determine your deductible loss:

1. Determine the decrease in fair market value due to the disaster
2. Subtract insurance reimbursements you received or expect to receive
3. Subtract $100 per casualty event
4. Subtract 10% of your adjusted gross income from total losses
5. Remaining amount is deductible

Disaster Loss Calculation Example

• Home value loss from hurricane: $50,000
• Insurance reimbursement: $30,000
• Adjusted gross income (AGI): $100,000

Calculation:

• Loss: $50,000
• Less insurance: ($30,000)
• Less $100 reduction: ($100)
• Net loss: $19,900
• Less 10% of AGI: ($10,000)
• Deductible loss: $9,900

You can choose to claim the loss in the year the disaster occurred or in the previous tax year by filing an amended return. Check FEMA’s disaster declarations to confirm if your area qualifies. See IRS Publication 547 for complete casualty loss rules.

Are Mortgage Points Tax Deductible?

Yes, points paid on a home purchase are typically deductible in full the year you pay them; refinance points must be deducted over the loan’s life.

Each point equals 1% of your loan amount, paid upfront to lower your interest rate. On a $300,000 mortgage, one point costs $3,000.

When Can You Deduct All Points in One Year?

Points on a home purchase are fully deductible in the year paid if the loan is for your primary residence and points don’t exceed typical amounts for your area.

1. Loan must be used to buy or build your primary residence
2. Paying points must be an established business practice in your area
3. Points paid can’t exceed typical amounts for your region
4. You must use the cash method of accounting
5. Points can’t cover items usually listed separately (appraisal fees, title costs)
6. You must provide at least the amount of points from your own funds (not borrowed from lender)

For refinances, you must deduct points over the life of the loan. If you pay $3,000 in points for a 30-year refinance, you deduct $100 per year ($3,000 ÷ 30 years). If you refinance again or sell the home before the loan term ends, you can deduct all remaining points in that year.

More details in IRS Publication 936.

How Do State Taxes Affect Homeowner Deductions?

State tax laws vary widely and can substantially impact your overall tax burden beyond federal deductions, especially in no-income-tax states with higher property taxes.

While federal tax policy provides the framework, state policies vary widely and can substantially impact your overall tax burden.

Which States Offer the Best Homeowner Tax Benefits?

States like New Jersey and Illinois offer enhanced credits and senior exemptions, while no-income-tax states like Texas and Florida have no mortgage interest deduction but often have homestead exemptions.

What Is a Homestead Exemption?

A homestead exemption reduces your home’s taxable value for property tax purposes, with states like Florida offering up to $50,000 in reductions for primary residences.

Most states offer homestead exemptions:

• Florida: Up to $50,000 reduction in assessed value for primary residences
• Texas: Various exemptions totaling $40,000+ for general homestead, plus additional for seniors/disabled
• California: Proposition 13 limits annual property tax increases to 2% maximum
• Illinois: General homestead exemption reduces EAV by $6,000, with enhanced benefits for seniors

Senior Property Tax Programs:
– Property tax deferrals allow seniors to postpone payment until sale or death
– Enhanced exemptions provide additional reductions for residents over 65
– Circuit breaker programs cap property taxes as percentage of income
– Available in states including California, Illinois, Pennsylvania, and Oregon

Visit the Database of State Incentives for Renewables & Efficiency (DSIRE) to find programs in your state.

How Can You Maximize Homeowner Tax Benefits in 2026?

Compare your itemized deductions to the standard deduction ($16,100 single, $32,200 joint). The higher SALT cap makes itemizing more attractive for many homeowners.

Strategic planning helps you maximize available tax benefits throughout your homeownership journey. The key is understanding which expenses qualify, maintaining proper documentation, and timing major improvements or transactions strategically.

Should You Itemize or Take the Standard Deduction?

Itemize if your mortgage interest, property taxes (up to $40,400), and other deductions exceed $16,100 (single) or $32,200 (married filing jointly).

Calculate whether itemizing exceeds your standard deduction:

How Does the New Charitable Deduction Floor Work?

Starting in 2026, only charitable donations exceeding 0.5% of your AGI are deductible. For example, $500 of a $3,000 donation would be non-deductible if your AGI is $100,000.

Charitable Deduction Floor Examples

AGI of $100,000:

• Floor: 0.5% × $100,000 = $500
• If you donate $3,000, only $2,500 is deductible

AGI of $200,000:

• Floor: 0.5% × $200,000 = $1,000
• If you donate $5,000, only $4,000 is deductible

AGI of $500,000:

• Floor: 0.5% × $500,000 = $2,500
• If you donate $10,000, only $7,500 is deductible

This floor affects your “itemize vs. standard deduction” calculation. Factor in the reduced charitable deduction when comparing your total itemized deductions to the standard deduction.

2026 Itemizing Strategy

With the SALT cap now at $40,400, many homeowners who previously took the standard deduction may benefit from itemizing. However, remember to account for the new charitable floor:

Example: Married couple with $200,000 AGI:

• Property taxes: $12,000
• State income taxes: $15,000
• Mortgage interest: $18,000
• Charitable contributions: $5,000
• Less 0.5% AGI floor: ($1,000)
• Deductible charitable: $4,000
• Total itemized: $49,000 (vs. $32,200 standard deduction)
• Tax savings from itemizing: $16,800 additional deductions

Essential Records to Keep

For Immediate Deductions:

• Form 1098 (mortgage interest statement)
• Property tax bills and payment receipts
• Points paid on mortgages
• PMI statements (new for 2026)

For Cost Basis Adjustments:

• All improvement receipts and invoices
• Contractor agreements and final bills
• Building permits and inspection certificates
• Before-and-after photos
• Material purchase records

Retention Period: Keep records for at least 3 years from filing date, 7 years recommended for major items. For capital improvements, maintain records until the statute of limitations expires for the year you sell the property.

When Should You Hire a Tax Professional?

Consider professional help for navigating SALT phase-outs, the new seniors’ deduction, home sales, improvements over $10,000, rental income, or casualty losses.

Tax laws governing homeownership are complex and change frequently. The OBBBA introduced substantial changes that may affect your tax strategy. Consider working with a qualified tax professional when you:

• Navigate the new SALT cap and income phase-outs
• Determine if the new seniors’ deduction applies to you
• Buy your first home or sell your current home
• Make substantial improvements ($10,000+)
• Have rental or short-term rental income
• Suffered casualty losses from disasters

Choosing the Right Tax Professional

Credentials to Look For:

• CPA (Certified Public Accountant): Comprehensive tax and accounting expertise
• EA (Enrolled Agent): IRS-licensed tax specialists
• Tax Attorney: Legal expertise for complex situations

Questions to Ask:

• How familiar are you with the OBBBA changes?
• What’s your experience with homeowner tax issues?
• How do you handle IRS inquiries or audits?

Expected Costs:

• Basic homeowner return: $200-$350
• Complex situations (business use, rentals): $400-$800
• Tax planning consultation: $150-$300/hour

Find more tax preparation guidance at IRS.gov.

What Are the Key Homeowner Tax Changes for 2026?

The OBBBA raised the SALT cap to $40,400, made the $750,000 mortgage limit permanent, added a $6,000-$12,000 seniors’ deduction, but eliminated energy credits.

Understanding homeowner tax benefits helps you make better financial decisions and maximize your savings. Here’s what changed for 2026:

Key 2026 Changes

Beneficial Changes:

• Higher SALT Cap: Deduct up to $40,400 in state/local taxes (phases out above $505,000 MAGI)
• Increased Standard Deduction: Now $16,100 (single) or $32,200 (joint)
• Seniors Benefit: New $6,000/$12,000 deduction for homeowners 65+ (through 2028)
• Permanent Mortgage Interest Limit: The $750,000 limit is now permanent
• PMI Deductible: Private mortgage insurance deductible (phases out at $100,000-$110,000 AGI)
• Home Equity Interest: Deductible if used for home improvements (within $750,000 total debt limit)

New Limitations:

• Charitable Floor: Donations only deductible above 0.5% of AGI for itemizers
• Energy Credits Expired: 25C and 25D credits ended December 31, 2025
• SALT Cap Temporary: Reverts to $10,000 in 2030
• Seniors Deduction Temporary: Available only through 2028

Action Steps:

• Recalculate whether itemizing now exceeds your standard deduction
• Factor in the new charitable floor when comparing deductions
• If 65+, determine if you qualify for the new seniors’ deduction
• Document all home improvements with receipts and permits
• Consult a tax professional for complex situations

By maintaining good records, timing improvements strategically, and seeking professional guidance when needed, you can ensure you’re taking full advantage of the tax benefits available to homeowners.

This guide reflects tax law as of January 2026 following the One Big Beautiful Bill Act signed July 4, 2025. Tax laws change frequently; consult a qualified tax professional for advice specific to your situation.