What Are the Tax Benefits of Buying a Home? Deductions and Credits Explained

Written by  Rene Bermudez

Edited by  Timothy Manni

+ 1 More

Updated Jul 07, 2026

There are many potential tax benefits of buying a home, but homeowners often leave money on the table because they don’t know which tax breaks apply to them or when itemizing deductions actually makes sense. 

This guide covers common tax deductions and credits available to homeowners, what each one is worth, and how to determine whether any of them would benefit you. 

What are tax breaks: Deductions and credits explained

The tax benefits of homeownership can come in the form of a tax deduction or a tax credit.

Standard deduction vs. itemized deductions

Before we cover the different tax breaks for homeowners, it’s important to understand the difference between the standard deduction and itemizing. The standard deduction allows you to subtract a fixed amount from your taxable income without listing specific expenses. If you itemize, you can subtract eligible expenses from your taxable income.

Here are the standard deductions for tax year 2026:

How to determine whether itemizing makes sense for you

If the total deductions you qualify for as a homeowner are higher than the standard deduction, then it may make more sense for you to itemize your deductions. Otherwise, the standard deduction will work in your favor. Consult your tax professional for specific guidance.

8 tax deductions for homeowners

1. Mortgage interest deduction

The mortgage interest deduction allows you to deduct the interest you pay on a mortgage from your taxable income, reducing how much you’ll owe at tax time. It’s one of the largest tax breaks available to homeowners and typically delivers the most savings in the early years of a mortgage, when your monthly payments are weighted heavily toward interest.

Who qualifies: You can claim this deduction if you itemize on Schedule A and your mortgage was used to buy, build or substantially improve your main home or a second home.

Deduction limits: 

How much could you actually save?

Say you have a $400,000 mortgage at a 7% interest rate. In year one, you’d pay roughly $27,800 in interest. Deducting $27,800 in interest reduces your taxable income by that amount. At a 22% federal tax bracket, that translates to about $6,100 less owed at tax time.

The savings are largest in the first few years of your loan. As you pay down principal over time, the interest portion of each payment shrinks, and so does the deduction’s value.

2. Interest on home equity loans and HELOCs

The same deduction limits apply to the interest paid on home equity loans and home equity lines of credit (HELOCs). If you’re a single taxpayer and the combined amount of your first mortgage and HELOC is less than $750,000, for example, you’re allowed to deduct the full amount of interest paid on both loans — but only if they were both used to build, buy or make improvements to your main or second home.

3. Home improvements

You may be eligible for a tax break on home improvements if the work is considered a capital improvement. The IRS defines a capital improvement as a home improvement project that:

This may include major renovations or additions, such as building a deck or garage. Eligible home improvement expenses are added to your cost basis, which can lower your taxable gain when you sell your house.

Medically necessary upgrades, such as installing ramps or handrails, may also be deductible.

4. Mortgage credit certificate

A mortgage credit certificate (MCC) is a tax credit issued by the government directly to a homeowner that allows you to reduce your tax bill by a specific percentage of your mortgage interest. You may be eligible for a mortgage credit certificate if you’re a first-time homebuyer, a military service member or are purchasing a home in an area targeted by the U.S. Department of Housing and Urban Affairs (HUD). Targeted areas may have been identified as needing development or revitalization.

5. Mortgage discount points deduction

Another tax benefit of buying a home is the ability to deduct mortgage points you paid upfront at closing. One mortgage point, sometimes called a discount point, is equal to 1% of your loan amount.

Generally speaking, you’ll deduct points over the life of your loan rather than in the year you paid them. However, there is an exception to this rule if you meet a series of tests, as outlined by the IRS. The tests include:

6. SALT property tax deduction

There’s a deduction for state and local taxes (SALT), which includes property taxes. In recent years the total deductible amount was capped at $10,000, but is temporarily increasing for 2025 through 2029 (after that, it goes back to $10,000). 

It’s important to know that, in some cases, if you receive a refund because of SALT deductions, some or all of that money may be taxable in the next tax year.

Deduction limits: 

7. Residential clean energy credit

There’s an eco-friendly tax break for homeowners, known as the Residential Clean Energy Credit. The incentive applies to energy-saving improvements to a home, including solar panels and wind turbines, among other energy-efficient upgrades. Depending on the specific equipment, improvements made to a second home may qualify.

The energy credit is limited to 30% of the improvement cost, depending on what year the energy upgrades were made. While initially scheduled to run through 2032 with a 30% credit, the One Big Beautiful Bill (OBBBA) amended the end date to cover expenditures made no later than 2025.

8. Alternative fuel vehicle refueling property credit

If you install refueling infrastructure for an alternative fuel vehicle at your home, you may be eligible for a credit of up to $1,000 for each item of property by claiming the Alternative Fuel Vehicle Refueling Property Credit. Property eligible for the credit may include electric vehicle charging equipment and must have been purchased before July 1, 2026.

Tax deductions for special uses of your home

Home office deduction

If you work from home or have a home-based business, you may qualify for the Home Office Deduction, which applies to both homeowners and renters. To qualify, a portion of your home (a bedroom-turned-office, for example) must be used exclusively and regularly for business purposes. You must also show that your home is the main location used to conduct your business.

There are two ways to claim the deduction:

Note: Remote employees typically don’t qualify for the deduction.

Rental expenses deduction

If you rent out all or part of your house, you may be able to deduct some of the expenses related to being a landlord, including:

Which expenses are deductible depends on whether you’re renting out a home you do not use personally versus one you do. The rules also vary depending on whether you use the house part time (such as with a vacation home) or full time, as in a roommate situation.

The rental expenses deduction is also unique in that you can use it even if you don’t itemize on Schedule A. Instead, you’ll use Schedule E (Form 1040) to report the rental income and calculate your deduction.

Tax breaks for selling your home

Tax-free profits on your home sale

One of the tax benefits of owning a home doesn’t kick in until after you sell your home — tax-free profits.

If you sell your house at a profit, capital gains on a home sale are often tax-free up to $250,000 if you’re single, and up to $500,000 if you’re married filing jointly. You must have lived in and used the home as your primary residence for at least two of the five years before the sale date to qualify for this tax break.

Foreclosure or short sale (discharged debt) deduction

If you sell your home in a short sale or go through foreclosure, the house is sold and the proceeds are used to pay back the lender. However, if the amount you owed isn’t fully covered by those proceeds, the remaining debt is called a “deficiency,” and your lender could still expect you to pay that debt. If the lender forgives the deficiency, on the other hand, it’s considered part of your taxable income.

A temporary federal tax break that allowed many homeowners to exclude canceled mortgage debt from taxable income expired after 2025. Depending on your circumstances, other IRS exclusions or exceptions (such as insolvency or bankruptcy) may still apply, so be sure to consult a tax professional.

How to claim tax deductions

1. Wait for your tax forms

Each lender with whom you have a mortgage is required to send you a tax form called a Mortgage Interest Statement (Form 1098). When your 1098 comes, review the amount of interest listed as paid. Box 1 will show how much interest you’ve paid, not including points, and box 6 will show the points you may be able to deduct.

2. Determine whether to itemize

Add up the total amount of eligible expenses across all of the deductions that apply to you. Then, compare that number to the standard deduction amount for which you qualify. If your total itemized deduction amount doesn’t exceed the standard deduction amount for your tax filing status, then it doesn’t make sense to itemize your deductions.

3. Claim your deductions

If you’ve decided to itemize, your final step is to sit down with your Schedule A (Form 1040) and claim all of the deductions for which you qualify.