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Here's what you need to know right now: If you live in your home and don't generate income from it, your homeowners insurance premiums aren't tax deductible. Period.
I've been in the mortgage industry for two decades. I've seen every creative tax strategy homeowners try to use. This one never changes. The IRS is crystal clear—personal home insurance isn't deductible because it's a personal expense, not a business one.
But that's not the whole story.
While your basic homeowners policy won't reduce your tax bill, there are actually twelve other homeowner tax deductions you can claim in 2026. Some of them are worth thousands of dollars. Three major deductions just expired on December 31, 2025, but several others got significantly better thanks to new tax legislation.
Let me walk you through what actually works.
The IRS separates personal expenses from business expenses. Your home insurance falls into the personal category because it protects your personal property. You're not running a business. You're not generating income. You're just living there.
Think of it like this: You can't deduct your groceries, your car insurance for personal driving, or your gym membership. Home insurance sits in that same bucket of personal living expenses.
There are exactly three exceptions where home insurance becomes deductible:
First exception: You rent out part of your home. If you rent a bedroom through Airbnb or have a basement apartment, you can deduct the proportional cost of insurance that covers that rental space. Rent out 20% of your home's square footage? You can deduct 20% of your insurance premium.
Second exception: You run a legitimate business from your home. Not just checking work email from your couch—we're talking about a dedicated home office that meets IRS requirements. The space must be used exclusively and regularly for business. If it qualifies, you can deduct the proportional insurance cost.
Third exception: You own investment property. A house you bought solely to rent out or flip qualifies as a business property. The entire insurance premium becomes a deductible business expense on Schedule E.
For everyone else—which is most homeowners—the insurance premium is just part of the cost of ownership.
Here's the thing nobody talks about enough: Even if home insurance were deductible, it probably wouldn't help you anyway.
The standard deduction jumped significantly for 2025 tax returns (filed in 2026). Single filers get $15,750. Married couples filing jointly get $31,500. If you're 65 or older, add another $2,000 per person.
That's before we even get to the new senior deduction. Under the One Big Beautiful Bill Act signed in July 2025, seniors 65 and older can deduct an additional $6,000 if their modified adjusted gross income stays below $75,000 (single) or $150,000 (married filing jointly). This temporary provision runs through 2028.
Do the math: A married couple where both spouses are 65 or older could potentially claim a standard deduction of $35,500 ($31,500 base + $2,000 + $2,000) before even considering the extra $12,000 senior deduction. That's a combined potential standard deduction of $47,500.
To benefit from itemizing deductions—which is the only way to claim things like mortgage interest and property taxes—your total itemized deductions need to exceed your standard deduction. For most homeowners, that's an increasingly difficult threshold to clear.
According to IRS data, about 88% of tax returns in 2021 claimed the standard deduction instead of itemizing. That percentage likely increased for 2024 and 2025 returns given the higher standard deduction amounts.
Let's focus on what actually works. These are legitimate deductions you can use right now.
This is the big one. If you have a mortgage, the interest you pay is generally deductible—assuming you itemize.
The Tax Cuts and Jobs Act of 2017 lowered the deduction limit from $1 million to $750,000 for mortgages originated after December 15, 2017. That limit was scheduled to revert to $1 million on January 1, 2026.
But the One Big Beautiful Bill Act made the $750,000 limit permanent. If you're married filing separately, your limit is $375,000.
Mortgages originated before December 16, 2017, are grandfathered under the old $1 million limit ($500,000 married filing separately). This grandfather clause remains in effect for the life of those loans.
Here's what counts as deductible mortgage interest:
- Interest on loans to buy, build, or substantially improve your primary residence
- Interest on loans for a qualified second home
- Mortgage points paid at closing (may be deductible all at once or spread over the life of the loan)
Here's what doesn't count:
- Interest on home equity loans or lines of credit used for personal expenses like paying off credit cards or funding vacations
- Interest on refinanced mortgages that exceed the original principal balance, unless used for home improvements
The mortgage interest deduction remains one of the most valuable homeowner tax benefits. On a $500,000 mortgage at 6.5% interest, you're paying approximately $32,500 in interest during the first year. For a married couple in the 24% federal tax bracket, that deduction saves $7,800 in taxes.
Your mortgage lender will send you Form 1098 showing your annual interest paid. You'll claim this deduction on Schedule A of Form 1040.
This is brand new—or rather, newly restored.
The PMI deduction expired after tax year 2021 and hadn't been available for 2022, 2023, or 2024. The One Big Beautiful Bill Act permanently restored it starting with tax year 2026.
PMI now gets treated as deductible mortgage interest. This applies to:
- Private mortgage insurance on conventional loans
- FHA mortgage insurance premiums (both upfront and annual)
- VA funding fees
- USDA guarantee fees
According to industry data, this deduction was claimed 44 million times during its previous existence, with 4 million homeowners claiming a combined $65 billion in deductions annually. The average deduction was approximately $2,364 per eligible homeowner.
The deduction phases out at higher income levels. If your adjusted gross income exceeds $100,000 ($50,000 if married filing separately), the deduction gradually reduces and disappears completely at $109,000 ($54,500 MFS).
For first-time homeb uyers who put down less than 20%, this restored deduction can save $400 to $700 annually depending on the loan amount and tax bracket.
You can deduct state and local taxes, including property taxes, on Schedule A. This is known as the SALT deduction.
For years, the SALT deduction was capped at $10,000 ($5,000 married filing separately). For homeowners in high-tax states like California, New York, New Jersey, Illinois, and Connecticut, this cap was painful. Property taxes alone often exceeded $10,000 annually.
The One Big Beautiful Bill Act temporarily raised the cap to $40,000 for tax years 2025 through 2029. But there's a catch: The increased cap only applies to filers with modified adjusted gross income under $500,000 ($250,000 married filing separately).
If your MAGI exceeds $500,000, the cap gradually reduces by 30% until it reaches the old $10,000 limit. The cap and income thresholds increase by 1% annually through 2029.
For a homeowner in Westchester County, New York, paying $18,000 in annual property taxes and $12,000 in state income taxes, this change means they can now deduct the full $30,000 instead of being capped at $10,000. For someone in the 32% federal tax bracket, that's an additional $6,400 in tax savings annually.
After 2029, the cap is scheduled to revert to $10,000 unless Congress extends the provision.
Mortgage points—also called discount points—are fees you pay at closing to reduce your interest rate. One point equals 1% of your loan amount.
Points are generally deductible, but the timing depends on your situation.
Deductible in the year paid (all at once) if you meet these tests:
- The loan is secured by your primary residence
- Paying points is standard practice in your area
- The points weren't more than generally charged in your area
- You use the cash method of accounting
- The points weren't paid for items typically listed separately on the settlement statement (appraisal fees, inspection fees, title fees, attorney fees, property taxes)
- The funds you provided at or before closing (including down payment, deposit, earnest money, and other funds) were at least as much as the points charged
- You didn't borrow the funds to pay the points from your lender or mortgage broker
- The points were computed as a percentage of your mortgage principal
- The amount is clearly shown on your settlement statement
Deductible over the life of the loan if you don't meet all tests:
If you're refinancing or the points don't meet the tests above, you deduct them ratably over the life of the loan. On a 30-year mortgage with $3,000 in points, you'd deduct $100 per year ($3,000 ÷ 30 years).
On a $400,000 purchase with one point ($4,000), immediate deductibility saves a 24% bracket taxpayer $960 in year one versus $96 per year over 30 years.
The home office deduction is available—but it's more restrictive than most people think.
You must be self-employed. If you're an employee working remotely, you cannot claim this deduction. The Tax Cuts and Jobs Act suspended the employee home office deduction through 2025, and the One Big Beautiful Bill Act made this suspension permanent.
For self-employed individuals, your home office must meet stringent requirements:
Exclusive use test: The space must be used exclusively for business. If your spare bedroom doubles as a guest room, it doesn't qualify. If your kitchen table is your desk, it doesn't qualify.
Regular use test: You must use the space regularly for business, not occasionally.
Principal place of business test: The home office must be either your principal place of business or a place where you regularly meet clients/customers in the normal course of business.
There are two calculation methods:
Simplified method: Deduct $5 per square foot of office space, up to 300 square feet (maximum $1,500 deduction).
Actual expense method: Calculate the percentage of your home used for business and apply that percentage to expenses like mortgage interest, property taxes, insurance, utilities, repairs, and depreciation.
A 200-square-foot office in a 2,000-square-foot home represents 10% of your home. If your annual expenses are $30,000, you could potentially deduct $3,000 using the actual expense method versus $1,000 using the simplified method.
The actual expense method requires meticulous recordkeeping but often results in larger deductions. You'll need to maintain documentation for every expense claimed.
If you rent out part of your home or own investment property, you unlock an entirely different set of deductions.
For rental property you own separately:
The entire cost of owning and maintaining rental property is deductible as a business expense on Schedule E:
- Mortgage interest (100% of it, not subject to the $750,000 limit)
- Property taxes (100%, not subject to SALT cap)
- Insurance premiums (100%)
- Repairs and maintenance
- Property management fees
- Utilities (if you pay them)
- HOA fees
- Depreciation (27.5 years for residential rental property)
- Travel expenses to manage or maintain the property
For part of your primary residence that you rent:
You can deduct the proportional costs. If you rent out a 400-square-foot basement apartment in your 2,000-square-foot home (20% of total), you can deduct:
- 20% of mortgage interest
- 20% of property taxes
- 20% of insurance
- 20% of utilities
- 100% of expenses specific to the rental unit
- Depreciation on the rental portion
The IRS requires that any rental space be rented at fair market rates and operated like a business. Personal use of the space must be limited. If you rent out a room for 14 days or less annually, you don't have to report the income—but you also can't deduct expenses.
For a homeowner who converts a basement to generate $18,000 annual rental income, the deductions can significantly offset that income, potentially reducing the tax impact to near zero or even creating a loss that offsets other income (subject to passive activity rules).
Capital improvements aren't deductible in the year you make them. Instead, they increase your home's cost basis, which reduces capital gains when you eventually sell.
The distinction between repairs (currently deductible for rentals) and capital improvements (added to basis) matters:
Repairs maintain your property's current condition:
- Fixing a leaky faucet
- Repainting a room
- Replacing broken windows
- Patching a roof
Capital improvements add value, prolong the home's life, or adapt it to new uses:
- Installing a new HVAC system
- Adding a bathroom
- Finishing a basement
- Installing a swimming pool
- Replacing the entire roof
- Adding a deck or patio
- Upgrading the kitchen
- Installing a security system
When you sell your home, you can exclude up to $250,000 in capital gains ($500,000 married filing jointly) if you meet the ownership and use tests. Any gain above that exclusion is taxable.
Your cost basis = original purchase price + capital improvements + closing costs when you bought - depreciation taken (if any).
Example: You bought your home in 2010 for $300,000. Over 15 years, you invested $150,000 in capital improvements (new roof, kitchen remodel, added bathroom, finished basement, new HVAC). Your adjusted basis is $450,000. You sell in 2026 for $800,000. Your gain is $350,000. After applying the $250,000 exclusion (single filer), you owe capital gains tax on $100,000.
Without tracking those improvements, your basis would be $300,000, resulting in a $500,000 gain and $250,000 of taxable gain instead of $100,000.
At a 15% long-term capital gains rate, those tracked improvements saved you $22,500 in taxes ($150,000 × 15%).
Keep receipts, invoices, contracts, permits, and before/after photos for every capital improvement. Store them permanently. You'll need them decades from now.
Medical expenses exceeding 7.5% of your adjusted gross income are deductible if you itemize. This includes certain home improvements made for medical reasons.
IRS Publication 502 lists qualifying medical home improvements:
- Constructing entrance or exit ramps
- Widening doorways
- Installing railings and support bars
- Lowering kitchen cabinets
- Installing wheelchair lifts
- Modifying stairways
- Adding handrails or grab bars
- Modifying bathroom fixtures
- Grading ground for wheelchair access
- Installing porch lifts and other forms of lifts (but not elevators)
The deduction equals the cost minus any increase in your home's value. If you spend $10,000 on accessibility improvements and an appraiser determines they increased your home's value by $3,000, you can deduct $7,000.
Improvements that don't increase home value—like grab bars or wider doorways—are fully deductible (subject to the 7.5% AGI threshold).
You need medical necessity. A doctor's recommendation strengthens your case if the IRS questions the deduction.
For business owners, the ADA provides additional tax incentives. The Disabled Access Credit (Form 8826) provides a credit of up to $5,000 for small businesses making their premises accessible.
The Tax Cuts and Jobs Act eliminated personal casualty and theft loss deductions except for losses in federally declared disaster areas.
If your home is damaged by a hurricane, wildfire, flood, or other event where the President declares a major disaster, you can deduct losses not covered by insurance.
The deduction has two layers of reduction:
Subtract $100 from each casualty event
Subtract 10% of your adjusted gross income from the total
If a wildfire destroys $150,000 of your property value and insurance covers $100,000, your unreimbursed loss is $50,000. Subtract $100 (= $49,900). If your AGI is $100,000, subtract another $10,000. Your deductible loss is $39,900.
In a 24% tax bracket, this saves $9,576 in federal taxes.
You claim casualty losses on Form 4684 and Schedule A. For federally declared disasters, you can elect to claim the loss on either the current year's return or an amended return for the prior year, potentially generating a refund faster.
This one hurts.
The Energy Efficient Home Improvement Credit allowed homeowners to claim 30% of costs up to $2,000 for heat pumps and up to $1,200 for other qualifying upgrades including:
- Energy-efficient windows and doors
- Insulation
- Central air conditioning
- Natural gas, propane, or oil water heaters
- Natural gas, propane, or oil furnaces and hot water boilers
- Electric heat pumps
- Electric heat pump water heaters
- Biomass stoves and boilers
The credit was nonrefundable (couldn't exceed your tax liability) but could be claimed annually with no lifetime limit.
The One Big Beautiful Bill Act ended this credit after December 31, 2025. Any improvements installed after that date don't qualify.
If you were planning energy-efficient upgrades, you missed the deadline. This represents a potential loss of $3,200 in annual tax savings that's now permanently off the table.
The other major expiration.
The Residential Clean Energy Credit provided a 30% tax credit for installing:
- Solar panels (photovoltaic systems)
- Solar water heaters
- Small wind turbines
- Geothermal heat pumps
- Fuel cells
- Battery storage technology (minimum 3 kWh capacity)
This credit had no dollar limit. On a $30,000 solar installation, homeowners saved $9,000 in federal taxes. The credit was nonrefundable but could carry forward to future years if it exceeded your annual tax liability.
The Inflation Reduction Act originally extended this credit through 2034 with a gradual phase-down starting in 2033. The One Big Beautiful Bill Act terminated it nine years early, effective January 1, 2026.
Leased and PPA (power purchase agreement) systems remain eligible for a commercial credit through 2027 under Section 48E, but homeowners who own their systems outright lost this benefit.
For homeowners who installed solar in 2025, the $9,000 average credit (based on $30,000 average installation cost) represented meaningful savings. That's gone for 2026 installations.
Some states offer their own incentives. New York provides a 25% state tax credit up to $5,000. California, New Jersey, Massachusetts, and Illinois maintain various rebate programs. But the federal benefit—the largest piece—is gone.
When you sell your primary residence, you can exclude up to $250,000 in capital gains ($500,000 married filing jointly) from federal taxation.
Requirements:
Ownership test: You owned the home for at least 2 of the last 5 years before the sale.
Use test: You lived in the home as your primary residence for at least 2 of the last 5 years. The two years don't need to be consecutive.
Frequency test: You haven't used the exclusion on another home sale in the last 2 years.
The exclusion amounts haven't changed since 1997. With median home prices rising 94% nationally since then, more homeowners now exceed these thresholds, especially in high-cost markets.
Two bills were introduced in 2025 to address this:
- Rep. Marjorie Taylor Greene's "No Tax on Home Sales Act" proposes eliminating capital gains taxes entirely on primary residence sales
- Rep. Jimmy Panetta's "More Homes on the Market Act" (H.R. 1340) proposes doubling the exclusion amounts
Neither has passed. The existing limits remain for 2026.
For homeowners whose gains exceed the exclusion, federal long-term capital gains rates apply (0%, 15%, or 20% depending on income). High earners also face the 3.8% Net Investment Income Tax on gains above $200,000 individual / $250,000 married filing jointly.
Let's be blunt about what happened.
At midnight on December 31, 2025, two major homeowner tax benefits disappeared:
The 30% solar tax credit: Gone. If you wanted solar panels, battery storage, geothermal systems—any of those clean energy installations—December 31 was your deadline. January 1 brought zero federal tax credit for homeowner-owned systems. The average homeowner lost $9,000 in potential tax savings.
The energy-efficient improvement credit: Also gone. New windows, doors, insulation, heat pumps, efficient furnaces—everything that qualified for up to $3,200 annually in credits no longer qualifies.
These weren't phased out. They didn't gradually reduce. They ended completely.
For a homeowner planning a comprehensive energy upgrade—new windows, insulation, a heat pump, and solar panels—the potential federal tax savings could have approached $15,000. That opportunity is permanently gone.
Third-party owned solar systems (leases and PPAs) still qualify for commercial credits through 2027, but you don't get the credit—the company that owns the system does. They may pass some savings to you through lower rates, but it's not the same as claiming $9,000 on your tax return.
Not everything changed for the worse.
Private mortgage insurance became deductible again. This helps first-time buyers and anyone with less than 20% equity. If you're paying $150 monthly in PMI ($1,800 annually), you can now deduct it. In a 22% tax bracket, that saves $396 annually.
The mortgage interest deduction is now permanent at $750,000. Uncertainty is gone. You can plan with confidence that this limit won't change. For homeowners with mortgages between $750,000 and $1 million, this is worse than the pre-2018 rules—but at least it's predictable.
The SALT deduction quadrupled temporarily. Going from $10,000 to $40,000 is massive for homeowners in high-tax states. This provision runs through 2029, giving you four more years of higher deductions before it potentially reverts.
The standard deduction increased significantly. For homeowners who don't itemize, the higher standard deduction means more tax-free income. The $1,150 to $2,300 increase in standard deduction amounts directly reduces taxable income for most families.
Seniors got new deductions. The $6,000 additional deduction for those 65 and older (income-limited) plus the existing $2,000 per person over 65 creates meaningful savings for retired homeowners.
Most homeowners should take the standard deduction.
The numbers are straightforward. To benefit from itemizing, your total itemized deductions must exceed your standard deduction.
For a single filer:
- Standard deduction: $15,750
- Typical mortgage interest (first year, $350,000 mortgage, 6.5%): $22,750
- Property taxes (nationwide median): $2,795
- Total itemized deductions: $25,545
- Benefit of itemizing: $9,795
This single homeowner saves $2,159 by itemizing (in 22% tax bracket).
For a married couple filing jointly:
- Standard deduction: $31,500
- Typical mortgage interest (first year, $500,000 mortgage, 6.5%): $32,500
- Property taxes (nationwide median): $3,500
- Total itemized deductions: $36,000
- Benefit of itemizing: $4,500
This married couple saves $990 by itemizing (in 22% tax bracket).
But what about a married couple with a smaller mortgage?
Married couple with paid-off home:
- Standard deduction: $31,500
- Mortgage interest: $0
- Property taxes: $3,500
- Charitable contributions: $2,000
- Total itemized deductions: $5,500
This couple takes the standard deduction and doesn't benefit from itemizing at all. Their property tax payments provide no additional tax benefit because the standard deduction exceeds their itemizable expenses.
As mortgages get paid down and interest payments decrease, more homeowners fall into this category. Ten years into a 30-year mortgage, your annual interest payment might drop from $32,500 to $28,000. Combined with $3,500 in property taxes, you're at $31,500—exactly the standard deduction threshold.
Let's circle back to the original question: When can you actually deduct homeowners insurance?
Situation 1: You run a legitimate business from home
Not remote work for an employer. Not checking email from your couch. A real business.
You need a dedicated space used exclusively for business. The IRS means exclusively—the room can't double as a guest room, your kids' playroom, or workout space.
If you qualify for the home office deduction, you can deduct the proportional cost of insurance. A 200-square-foot office in a 2,000-square-foot home (10% of total) means you can deduct 10% of your insurance premium.
On a $1,500 annual premium, that's $150. Not huge, but it adds up when combined with other home office deductions.
Situation 2: You rent out part of your property
Rent out a room through Airbnb? Have a basement apartment? Rent out a garage apartment? The rental portion of your insurance is deductible.
The calculation works the same way: proportional to the rented square footage.
If you rent 25% of your home's square footage, you can deduct 25% of your insurance premium. On a $2,000 annual premium, that's $500 deductible.
You'll claim this on Schedule E (Supplemental Income and Loss) along with your other rental income and expenses.
Situation 3: You own investment property
Property you bought specifically to rent out or flip qualifies as business property. The entire insurance premium is deductible as a business expense.
This applies to:
- Single-family homes you rent out
- Multi-family properties
- Vacation rentals where you don't use the property personally for more than 14 days or 10% of rental days (whichever is greater)
These deductions have no limits based on square footage. The full amount appears on Schedule E.
Tax planning just got harder.
The expiration of the energy credits means homeowners lost flexibility. In previous years, energy improvements could tip you over the standard deduction threshold. That $3,200 credit reduced your tax bill dollar-for-dollar regardless of whether you itemized.
Now, homeowners face an all-or-nothing threshold. Either you exceed $15,750 (single) or $31,500 (married filing jointly) in itemized deductions, or you get nothing extra.
The restoration of PMI deductibility helps some homeowners clear this threshold, but only if they're paying mortgage insurance. That typically applies to first-time buyers with less than 20% down, not established homeowners.
The increased SALT deduction helps high-tax state residents dramatically, but it doesn't help homeowners in Florida, Texas, Nevada, or other states with no income tax and relatively lower property taxes.
The net effect: More homeowners will take the standard deduction in 2026 than in previous years. The mortgage interest deduction becomes less valuable. Property tax payments provide less benefit.
For the mortgage industry, this changes the value proposition of homeownership. The tax benefits that historically helped justify buying versus renting became less compelling overnight.
If you're buying a home in 2026, here's what to focus on:
First: Run the itemization math before closing. Calculate your expected mortgage interest, property taxes, and other itemizable expenses. Compare that to the standard deduction. If you're close to the threshold, consider whether timing your closing or prepaying property taxes might push you over.
Second: Track every capital improvement. You might not benefit now, but you will when you sell. Maintain a permanent file with receipts, invoices, contracts, permits, and photos. This matters even more now that capital gains exclusion limits haven't increased.
Third: Consider the PMI deduction when calculating down payment. Previously, the lost PMI deduction made 20% down payments more attractive. Now that PMI is deductible again (starting 2026), the effective cost of carrying PMI is lower. A detailed analysis might show that keeping a smaller down payment and investing the difference could be financially advantageous.
Fourth: Max out your business and rental deductions if applicable. If you're self-employed or own rental property, these deductions have no itemization threshold. They reduce your income directly. Every dollar of deductible expenses saves you taxes at your marginal rate.
Fifth: Consider state incentives for energy improvements. The federal credits are gone, but many states offer their own programs. New York's 25% solar credit, California's SGIP battery storage rebate, Illinois' solar renewable energy credits, and Massachusetts' SMART program continue independent of federal policy.
If you were planning solar panels or energy-efficient improvements and missed the December 31, 2025 deadline, you have limited options:
For solar: Consider leases or PPAs. While you won't own the system, the leasing company can claim commercial tax credits through 2027 and may pass savings to you through lower payments. The economics are different but potentially viable.
For energy improvements: Focus on utility savings, not tax savings. Energy-efficient windows, insulation, and HVAC upgrades still reduce your utility bills. Without the federal credit, the payback period extends, but long-term savings remain real.
Check local utility rebates. Many utilities offer rebates for energy-efficient improvements independent of federal tax policy. These cash rebates apply regardless of your tax situation.
Lobby Congress. Both the solar credit and energy-efficient improvement credit have been reinstated before after expiring. Previous expirations in 2009-2010, 2013, and 2016 were followed by retroactive extensions. It's not impossible that Congress could reverse these provisions, especially if energy prices spike or climate policy shifts.
Mistake 1: Claiming your main home's insurance as a business expense. The IRS catches this. Don't try it.
Mistake 2: Forgetting to track capital improvements. You'll regret this when you sell and face a larger tax bill than necessary.
Mistake 3: Taking the standard deduction when itemizing would save money. Run the numbers every year. As circumstances change—mortgage balance, property taxes, charitable giving—the better option might switch.
Mistake 4: Claiming home office deduction when you're an employee. Even if you work from home full-time, employee home office deductions aren't available. Don't claim it.
Mistake 5: Deducting repairs as capital improvements on rental property. Repairs are immediately deductible. Capital improvements must be depreciated over time. Choose the wrong category and you either lose deductions or invite IRS scrutiny.
Your home insurance isn't deductible unless you generate income from your property. That hasn't changed and won't change.
But the landscape around homeowner tax benefits shifted dramatically on January 1, 2026. The expiration of energy credits removed valuable incentives. The restoration of PMI deductibility helped first-time buyers. The increased SALT deduction helped high-tax state residents. The permanent mortgage interest limit provided certainty.
The net effect depends on your specific situation:
First-time buyers with less than 20% down: Better off due to PMI deductibility.
High-tax state residents: Much better off due to quadrupled SALT deduction.
Energy-conscious homeowners: Worse off due to eliminated credits.
Established homeowners with paid-down mortgages: No change, already taking standard deduction.
Self-employed homeowners and landlords: No change, still benefiting from business deductions.
Tax strategy matters more now. The reduced complexity of fewer available deductions means the deductions that remain require more careful optimization.
Don't leave money on the table. Calculate whether itemizing makes sense for your situation. Track your capital improvements. Consider business and rental opportunities if they fit your circumstances. And work with a qualified tax professional who understands the new landscape.
The rules changed. Make sure your strategy changed with them.
If you work from home as an employee, you can't deduct your home insurance. The Tax Cuts and Jobs Act got rid of the employee home office deduction until 2025. The One Big Beautiful Bill Act made this permanent. You can deduct the proportionate cost of insurance that covers your office space if you are self-employed and have a home office that meets all IRS requirements (exclusive use, regular use, principal place of business). If you have a 200-square-foot office in a 2,000-square-foot home, you could get 10% off your insurance premium. To qualify, you must keep detailed records and make sure that your office space is only used for business.
The 30% residential clean energy credit ended on December 31, 2025. The Inflation Reduction Act originally extended this credit until 2034, but the One Big Beautiful Bill Act ended it nine years early. If the homeowner owns the equipment, systems installed after December 31, 2025 will no longer be eligible for any federal tax credits. But systems owned by third parties (leases and power purchase agreements) can still get commercial tax credits until 2027. The leasing company takes the credit and may give you savings by lowering your payments. This change took away the average tax savings of $9,000 per installation for homeowners who own their systems outright (based on the fact that a typical solar system costs $30,000).
Yes, PMI became tax-deductible again in 2026 after it ended in 2021. The One Big Beautiful Bill Act made the PMI deduction permanent and treats it like mortgage interest that can be deducted. This includes private mortgage insurance on regular loans, FHA mortgage insurance premiums (both upfront and annual), VA funding fees, and USDA guarantee fees. The deduction starts to go away when your adjusted gross income is more than $100,000 ($50,000 if you are married and filing separately) and is completely gone when your income is $109,000 ($54,500 MFS). During the deduction's previous life from 2007 to 2021, the average amount that eligible homeowners could deduct was $2,364.
If you got your mortgage after December 15, 2017, you can only deduct $750,000 in interest. If you are married and filing separately, you can only deduct $375,000. The limit was supposed to go back to $1 million on January 1, 2026, but the One Big Beautiful Bill Act made the $750,000 limit permanent. Mortgages that were taken out before December 16, 2017, are still subject to the higher $1 million limit ($500,000 for married couples filing separately) for the life of those loans. You can only deduct the interest on a mortgage if you used it to buy, build, or make major improvements to your main home or a qualified second home. If you take out a home equity loan or cash-out refinance, you can only deduct the interest if you use the money to make improvements to your home, not for personal expenses.
The One Big Beautiful Bill Act raised the limit on the state and local tax (SALT) deduction from $10,000 to $40,000 for tax years 2025 to 2029. This higher cap only applies to people who file their taxes with a modified adjusted gross income of less than $500,000 ($250,000 if they are married and filing separately). If your MAGI is more than $500,000, the cap goes down by 30% every year until it reaches the original $10,000 limit. The cap and income limits go up by 1% every year until 2029. This change is a big help for homeowners in states with high taxes, like California, New York, New Jersey, Illinois, and Connecticut, where property taxes alone can be more than $10,000 a year. The cap will go back to $10,000 after 2029 unless Congress extends the rule.
No, the Energy Efficient Home Improvement Credit ended on December 31, 2025. Any energy-efficient upgrades made after that date, like new windows, doors, insulation, heat pumps, furnaces, and more, do not qualify for any federal tax credit. Before, this credit gave up to $3,200 a year (30% of the cost of heat pumps up to $2,000, plus up to $1,200 for other qualifying upgrades). Even though federal tax credits are no longer available, many states and local utilities still offer rebates and other incentives for making energy-efficient upgrades. Ask your state's energy office and your utility company about programs that are available. These changes will still lower your utility bills over time, but the time it takes to pay for them will be longer without the federal tax credit speeding up your return on investment.
You should only itemize if your total itemized deductions are higher than your standard deduction. For example, for single filers, the standard deduction is $15,750; for married couples filing jointly, it is $31,500; for heads of household, it is $23,625; and for married couples filing separately, it is $15,750. Some common itemized deductions are mortgage interest, property taxes (the SALT deduction), donations to charity, and medical costs that are more than 7.5% of AGI. Most homeowners benefit from the standard deduction because the higher amounts (thanks to the One Big Beautiful Bill Act) are more than what they can itemize. For instance, a single homeowner with $18,000 in mortgage interest and $3,000 in property taxes ($21,000 total) saves more by itemizing. But a similar homeowner with only $12,000 in mortgage interest and $3,000 in property taxes ($15,000 total) does better by taking the $15,750 standard deduction. Every year, do the math again because your mortgage balance and situation change.
Capital improvements can make your home more valuable, last longer, or make it more useful for new purposes. Some examples are putting in a new HVAC system, adding a bathroom, finishing a basement, putting in a swimming pool, adding a deck or patio, doing a major kitchen remodel, and putting in a security system. Capital improvements aren't immediately tax-deductible, but they do raise the cost basis of your home, which lowers capital gains when you sell. This is different from repairs, which keep things in the same condition but don't add value. For example, fixing a leaky faucet, repainting a room, replacing broken windows, or patching a roof. Repairs on rental property can be written off right away, but capital improvements have to be written off over time. Keep track of all the capital improvements you make to your main home so that you can pay less capital gains tax when you sell it. This is especially important now that the $250,000/$500,000 exclusion limits haven't changed since 1997.
Yes, you can deduct a portion of your expenses on Schedule E if you rent out part of your main home through Airbnb or a similar site. You can deduct 20% of your mortgage interest, property taxes, insurance, utilities, and repairs if you rent out 20% of your home's square footage. You can also deduct all costs related to the rental space. You can also write off the rental value of your home. The IRS 14-day rule still applies. This means that if you rent out a home for 14 days or less during the year, you don't have to report the income, but you also can't deduct the costs. You have to report income and can deduct expenses based on how long you've been there. If you use the space yourself for more than 14 days or more than 10% of the rental days, whichever is longer, you can't deduct as much of your losses. Keep detailed records of the number of rental days, costs, and square footage calculations.
You can leave out up to $250,000 ($500,000 if you file jointly with your spouse) in capital gains when you sell your primary home, but you have to pass three tests first. You had to have owned the home for at least two of the five years before the sale to pass the ownership test. You have to have lived in the house as your main home for at least two of the last five years for the use test to pass. These years don't have to be the same two years as ownership or be consecutive. You can't have used the exclusion on another home sale in the last two years for the frequency test. To find your capital gain, subtract your adjusted basis (the original purchase price plus any capital improvements and buying costs minus any depreciation taken) from the sale price. If your gain is more than the exclusion amount, you will have to pay long-term capital gains tax on the extra at a rate of 0%, 15%, or 20%, depending on how much money you make. If you make a lot of money, you may also have to pay the 3.8% Net Investment Income Tax. Even if your whole gain is tax-free, you still need to report the sale on Form 8949 and Schedule D.
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