Surprising Tax Deductions You Can Claim as a Homeowner

Fact-checked by the The Credit Scout editorial team

Many people think homeowner tax deductions start and end with mortgage interest. They don’t. For 2025, the standard deduction sits at $15,000 for single filers and $30,000 for joint filers, but the tax code still rewards homeowners who dig deeper, especially now that the SALT cap has jumped to $40,000, per the IRS Publication 530 update. When you combine property taxes, state income taxes, mortgage interest, and less obvious breaks, itemizing can shrink your tax bill by thousands.

The real surprise? Some of the most valuable benefits don’t require itemizing at all. Credits for solar panels and heat pumps cut your tax liability dollar for dollar, and the capital gains exclusion often erases tax on home-sale profits entirely. This guide walks through every deduction and credit worth knowing, including a few that most people miss. And if you’re worried about triggering unwanted IRS attention while claiming these breaks, it’s worth reviewing how to avoid an IRS audit and the red flags to watch out for before you file.

Why Itemizing Makes a Comeback in 2025

For the first time in years, itemizing deductibly beats the standard deduction for a broad swath of homeowners. The raise in the SALT cap to $40,000 is the engine. In 2024, that cap sat at just $10,000, making it hard for anyone without a large mortgage to justify Schedule A. Now, a married couple paying $8,000 in property taxes and $12,000 in state income taxes can already claim $20,000, more than halfway to the standard deduction, before counting a penny of mortgage interest.

Here’s how the numbers line up for 2025, using the latest inflation-adjusted figures from the IRS. (For a deeper look at how standard deduction amounts will shift next year, see our breakdown of the 2026 standard deduction amounts.)

The SALT deduction begins to phase out once modified adjusted gross income passes $500,000. The reduction is gradual, but high-earning homeowners lose some of the benefit, a cap on the cap, effectively. Still, for most people, the new math is straightforward: add property taxes, state income tax, mortgage interest, and a few other breaks, then compare the total to the standard deduction. If the sum is larger, itemize. Homeowners who are also self-employed will want to pay particular attention here, since business-use deductions can stack on top of itemized deductions, a point covered in detail in our guide on how a self-employed freelancer can build strong financial footing without a traditional job.

What Does the Mortgage Interest Deduction Actually Cover?

You can deduct interest on up to $750,000 of acquisition indebtedness, money you borrowed to buy, build, or substantially improve your primary or second home. Loans taken before December 16, 2017, qualify for the older $1 million cap. Married couples filing separately split the limit: $375,000 each. Any interest on debt beyond those thresholds is personal interest and not deductible, according to IRS Publication 530.

The deduction covers your main home and one second home. Lenders report the interest you paid on Form 1098, which makes it easy to confirm the number before you transfer it to Schedule A. Points paid to lower your mortgage rate are also deductible, either in the year paid (for a primary home purchase) or spread over the life of the loan (for refinances). If you refinanced in 2025 and paid points, check IRS Publication 936 to determine which method applies.

One area where homeowners frequently leave money on the table: they assume a vacation home doesn’t qualify. It does, as long as you didn’t rent it out for more than 14 days during the year. Rent it more than that, and the IRS treats it as a rental property, which unlocks different deductions but removes it from the mortgage interest deduction calculation for personal use days. Keeping clean records of personal versus rental days is essential, especially if you also rely on budgeting tools; our roundup of the best budgeting apps for tracking irregular income and expenses highlights several options that handle mixed-use properties well.

How Do Property Taxes Work Under the New $40,000 SALT Cap?

State and local taxes, including real estate property taxes, state income taxes, and local income taxes, can all be deducted under the SALT umbrella. The combined deduction is now capped at $40,000 for most filers in 2025, up from $10,000. That cap is per return, not per person, which is why married couples filing separately each get only $20,000.

Property taxes are deductible in the year you actually pay them, not the year they accrue. This matters if your county bills in arrears or if you prepay. Payments made through an escrow account are deductible when the servicer actually remits them to the taxing authority, which may not match the month your payment cleared. Review your annual escrow statement to find the exact amount sent to the tax authority, not just what you paid into escrow.

Assessments for local improvements, a new sidewalk, a street repaving, sewer upgrades, are generally not deductible even though they appear on your property tax bill. The IRS distinguishes between taxes levied for general welfare and assessments that increase the value of your property. The latter gets added to your cost basis instead, which reduces taxable gain when you eventually sell.

When Are HELOC and PMI Interest Deductible?

Home equity loan and HELOC interest is deductible only when the borrowed money is used to buy, build, or substantially improve the home that secures the loan. If you drew $30,000 from your HELOC to renovate the kitchen, the interest qualifies. If you used those same funds to pay off credit cards, take a vacation, or buy a car, the interest is personal, not deductible, even though the loan is secured by your home. This rule has been in place since 2018 and catches many homeowners off guard.

The $750,000 debt cap applies across all loans secured by the property, including HELOCs. If your primary mortgage is already at $700,000 and you add a $100,000 HELOC, only the interest on $50,000 of the HELOC qualifies, the rest pushes you over the ceiling. Documentation is critical: keep receipts, contractor invoices, and bank statements showing the funds went directly to home improvement.

Private mortgage insurance premiums disappeared from the deductible column in 2022 when Congress let the extension lapse. The One Big Beautiful Bill Act revives the PMI deduction starting in tax year 2026, but for 2025 returns, PMI is still off the table. If you’re currently paying PMI and wondering whether eliminating it faster would help your overall financial picture, the analysis is similar to the debt-payoff decisions covered in our guide on whether to pay off debt first or build an emergency fund.

Energy-Efficient Improvements and Tax Credits

The Energy Efficient Home Improvement Credit (Section 25C) is worth up to $3,200 per year and covers a wide range of upgrades. Unlike a deduction, which reduces your taxable income, this is a credit, meaning it reduces your tax bill dollar for dollar. The annual breakdown is as follows:

• $1,200 for insulation, exterior windows and doors, energy audits, and certain HVAC upgrades (central air conditioners, furnaces, boilers)
• $2,000 for heat pumps, heat pump water heaters, and biomass stoves or boilers

The two subcategories can stack in the same tax year, pushing the total to $3,200. These limits reset annually, so if you spread improvements over multiple years, you can claim up to $3,200 each year. An energy audit alone qualifies for a credit of up to $150 and is a smart first step, it tells you which upgrades will save the most energy and therefore generate the largest credit.

The Residential Clean Energy Credit (Section 25D) covers solar panels, solar water heaters, wind turbines, geothermal heat pumps, fuel cells, and battery storage. For systems installed through 2032, the credit equals 30% of the cost, including installation. There is no annual dollar cap on this credit. A $20,000 solar installation generates a $6,000 credit. Unlike the 25C credit, the 25D credit can carry forward to future tax years if it exceeds your current-year liability.

Home Office, Medical Modifications, and Casualty Losses: What Homeowners Miss

The home office deduction is available only to self-employed individuals, employees who work from home cannot claim it, even if their employer requires it. The space must be used regularly and exclusively for business. “Regularly and exclusively” is strict: a guest room that doubles as an office doesn’t qualify. You can calculate the deduction using the simplified method ($5 per square foot, up to 300 square feet, for a maximum of $1,500) or the regular method (actual expenses multiplied by the percentage of your home used for business).

Medical modifications are an often-overlooked deduction. If you install a wheelchair ramp, widen doorways, add grab bars, lower cabinets, or make other home modifications for a medical reason, those costs can be deducted as medical expenses, to the extent they don’t increase the home’s market value. If the modification does increase value, only the excess cost over the value increase is deductible. Medical expenses are deductible only to the extent they exceed 7.5% of AGI, so this deduction tends to benefit homeowners with significant medical costs or lower incomes.

Casualty losses are highly restricted since 2018. A deduction is available only if the loss results from a federally declared disaster, fire, flood, hurricane, tornado, and similar events that the President formally declares. Personal theft and non-disaster events no longer qualify. The deduction equals the lesser of the property’s adjusted basis or the decrease in fair market value, minus $100 per event and then minus 10% of AGI. If you live in a disaster-prone area, documenting your home’s value and maintaining updated home inventory records before any event occurs is essential.

How the Capital Gains Exclusion Protects Home-Sale Profits

When you sell your primary residence, the first $250,000 of profit ($500,000 for married couples filing jointly) is excluded from capital gains tax, no itemizing required, no income limit, no form to file beyond the standard return. To qualify, you must have owned the home and used it as your primary residence for at least two of the five years before the sale. The two years don’t have to be consecutive.

Your taxable gain equals the sale price minus selling costs (commissions, closing costs, transfer taxes) minus your adjusted basis. The adjusted basis starts at the purchase price and increases with the cost of capital improvements, the new roof, the kitchen remodel, the addition. This is why keeping records of every major improvement matters: each dollar of improvement reduces your eventual taxable gain. A $600,000 gain on a jointly owned home with $100,000 in documented improvements becomes a $500,000 gain, exactly at the exclusion threshold.

Partial exclusions are available if you sell before meeting the two-year test due to a job change, health issue, or other unforeseen circumstance. The IRS prorates the exclusion based on how long you actually lived in the home. For example, if you lived there for one year (half of the required two) and are single, you may exclude up to $125,000 of gain. IRS Publication 523 covers the full rules and safe-harbor definitions for qualifying circumstances.

One wrinkle: if you ever claimed a home office deduction on the property, the depreciation you deducted is subject to recapture at a 25% rate, even if the overall gain falls within the exclusion. This is called unrecaptured Section 1250 gain, and it applies to the cumulative depreciation claimed over the years the space was used for business. Keep this in mind when evaluating whether the home office deduction makes sense long-term.

Frequently Asked Questions

Can I claim homeowner tax deductions if I take the standard deduction?

Most homeowner tax deductions, including mortgage interest, property taxes, and HELOC interest, require you to itemize on Schedule A. If your itemized deductions don’t exceed the standard deduction ($15,000 for single filers, $30,000 for joint filers in 2025), you’ll take the standard deduction and forfeit those itemized breaks. However, energy tax credits under Sections 25C and 25D and the capital gains exclusion on home-sale profits do not require itemizing. Those benefits are available to all qualifying homeowners regardless of which deduction method they choose.

What counts as a “substantial home improvement” for deduction purposes?

The IRS defines a substantial improvement as one that adds value to your home, prolongs its useful life, or adapts it to a new use. Examples include adding a room, finishing a basement, replacing a roof, installing a new HVAC system, adding a deck, or renovating a kitchen. Routine repairs, fixing a leaky faucet, repainting a room, replacing a broken window, do not qualify as improvements and cannot be added to your cost basis. The distinction matters both for HELOC interest deductibility and for calculating your adjusted basis when you sell.

Is mortgage interest fully deductible if I have a jumbo loan?

Not necessarily. The mortgage interest deduction is capped at debt of $750,000 (or $1 million for loans originated before December 16, 2017). If your loan balance exceeds that threshold, you can only deduct the interest attributable to the qualifying portion. For example, if your loan balance is $1,000,000 and the cap is $750,000, you can deduct 75% of the interest you paid. Your lender’s Form 1098 will show the total interest paid, but the calculation of the deductible portion is your responsibility, IRS Publication 936 provides the worksheet.

Can I deduct property taxes paid through my escrow account?

Yes, but only the amounts your mortgage servicer actually remitted to the tax authority during the tax year, not the total you paid into escrow. These two figures often differ because servicers maintain a cushion in escrow accounts. To find the exact deductible amount, check the annual escrow analysis statement your servicer sends at year-end, or contact your servicer directly. Do not simply use the amount shown on your monthly mortgage statement, as that reflects escrow deposits, not tax payments.

What happens to my home office deduction when I sell my house?

If you claimed the home office deduction and took depreciation on that portion of your home, you’ll owe depreciation recapture tax at 25% on the cumulative depreciation when you sell, even if the overall gain is covered by the capital gains exclusion. This is called unrecaptured Section 1250 gain. For example, if you depreciated $10,000 of your home over five years of business use, you’ll owe $2,500 in recapture tax at sale. The capital gains exclusion does not shield this amount. Keeping records of all depreciation claimed is essential for accurate tax reporting at the time of sale.

Are there income limits on the mortgage interest deduction?

No. Unlike many other tax breaks, the mortgage interest deduction does not phase out based on income. Whether you earn $60,000 or $600,000, you can deduct interest on up to $750,000 of qualifying mortgage debt as long as you itemize. However, very high earners should be aware that the alternative minimum tax (AMT) can disallow certain itemized deductions, potentially reducing the effective benefit. Consulting a tax professional is advisable if your income regularly triggers AMT calculations.

Can a freelancer or gig worker claim the home office deduction?

Yes, but only if they are self-employed and the space is used regularly and exclusively for business. W-2 employees, including remote workers, cannot claim the home office deduction even if their employer requires them to work from home. Self-employed homeowners who qualify can deduct a proportional share of mortgage interest, property taxes, utilities, insurance, and depreciation, or use the simplified $5-per-square-foot method. Because this deduction also triggers depreciation recapture at sale, it requires careful planning from the start.

Does the Earned Income Tax Credit interact with homeowner deductions?

The Earned Income Tax Credit (EITC) is a separate benefit primarily for lower- and moderate-income workers, and it operates independently from homeowner deductions. Claiming mortgage interest or property tax deductions on Schedule A does not disqualify you from the EITC, though the deductions may lower your AGI in ways that slightly affect EITC calculations. If you’re unsure whether you qualify for the EITC in addition to homeowner breaks, our detailed guide on what the Earned Income Tax Credit is and who qualifies covers the eligibility rules in full.

What documentation do I need to claim energy-efficiency tax credits?

For the Energy Efficient Home Improvement Credit (25C), you need a Manufacturer’s Certification Statement confirming the product meets IRS efficiency standards, along with receipts showing the purchase price and installation costs. For the Residential Clean Energy Credit (25D), you need contractor invoices or purchase agreements documenting the total system cost, including installation. In both cases, complete IRS Form 5695 and attach it to your return. Retain all supporting documents for at least three years after filing, longer if your credit carries forward to future years.

Can I deduct a home security system or smart home devices?

Generally, no. A home security system or smart home device installed for personal use is not deductible. However, if you have a qualifying home office and the device is used in connection with your business, for example, a security camera that monitors the business portion of your home, a proportional share of the cost may be deductible as a business expense. As with all home office-related deductions, the business-use percentage must be documented and defensible. Standard personal home upgrades like smart thermostats may qualify for the energy credit if they meet efficiency requirements, but the credit applies to the device cost, not as a deduction.

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