Tax Planning for Homeowners
Know when itemizing pays, which home costs are deductible, and how the home-sale exclusion works.
TL;DR
- Itemize only when mortgage interest,
SALT, and gifts beat the standard deduction. - Deduct mortgage interest on up to
$750,000of home debt. - Exclude up to
$250,000of gain ($500,000joint) when you sell.
Should You Itemize
Compare to StandardItemize only if your write-offs beat the standard deduction.
Beat $16,100 single / $32,200 jointWhat CountsMortgage interest, capped state taxes, and charitable gifts.
Interest + SALT + charityRecheck YearlyA shrinking mortgage can flip you back to the standard.
Less interest each yearBunch to Beat ItGroup deductible costs into one year to clear the bar.
Prepay to stack a big yearDeductions for Owners
Mortgage InterestDeduct interest on up to $750,000 of home loans.
Main + one second homeSALTState income or sales tax plus property tax, up to the cap.
$40,400 cap in 2026PointsPurchase points deduct now; refinance points spread out.
Buy: now / Refi: over the loanHome Equity InterestDeductible only when the loan improves that same home.
Improve the home = deductibleWhen You Sell
The ExclusionExclude a large chunk of gain on your main home.
$250,000 single / $500,000 jointThe 2-of-5 TestOwn and live there two of the last five years to qualify.
2 of last 5 years as your homeTrack Your BasisImprovements raise basis and shrink the taxable gain.
Basis = price + improvementsGain Above the LimitAnything over the exclusion is a long-term gain.
Excess taxed at 0/15/20%Know What Changed
Energy Credits EndedHome efficiency and solar credits stopped after 2025.
No federal energy credit in 2026Higher SALT CapItemizers can now deduct more state and local tax.
$40,400, up from $10,000Home OfficeOnly the self-employed can deduct a home office.
$5/sq ft, up to $1,500Watch Rental DaysRenting the home too much changes these rules.
Over 14 days = rental rulesTips
- Keep a folder of every improvement receipt; capital work raises your
costBasisand can erase the tax when you sell. - Run the
itemizeversus standard-deduction math every year, since a shrinking mortgage balance eventually tips it back to standard.
Warnings
- The home energy and solar
energyCreditended after 2025, so upgrades placed in service in 2026 earn no federal credit. - State and property taxes count only up to the
SALTcap of $40,400 for 2026, which phases down above $505,000 of income.
In Practice
See how basis tracking and the exclusion can wipe out the tax on a big sale.
You are married filing jointly, bought your home for $300,000, spent $50,000 on improvements, and sell for $700,000 after living there ten years.
- Cost basis: $300,000 + $50,000 = $350,000.
- Gain: $700,000 - $350,000 = $350,000.
- Exclusion for joint filers: $500,000.
- Taxable gain: $350,000 - $500,000, which stops at $0.
The full $350,000 gain is excluded, so you owe no tax.
Tracking improvements and the $500,000 exclusion often erase the tax.
FAQ
Only if your itemized deductions beat your standard deduction, which is $16,100 single or $32,200 married filing jointly for 2026. Add up mortgage interest, state and local taxes up to the cap, and charitable gifts. Owners with a large mortgage or high property taxes are the most likely to come out ahead itemizing.
Interest on up to $750,000 of loans used to buy, build, or substantially improve a main and one second home. Points you pay at closing on a purchase are usually deductible that year, while points on a refinance are spread over the life of the loan. Your lender reports the interest on Form 1098.
Often not. Under the Section 121 exclusion, you can exclude up to $250,000 of gain, or $500,000 married filing jointly, if you owned and lived in the home for at least two of the last five years. Only gain above the exclusion is taxed, at long-term capital gains rates.
No. The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit both ended for property placed in service after December 31, 2025. Improvements like heat pumps, insulation, and solar panels installed in 2026 no longer qualify for those federal credits, though some state or utility incentives may remain.