HOMEOWNERSHIP AND TAX DEDUCTIONS: TAX SAVINGS MADE EASY
Tax season can be stressful, but if you own a home, you may be eligible for tax benefits that could lower your bill. While most homeowners know about the mortgage interest deduction, many overlook additional deductions and credits that could lead to significant savings.
Before you file your taxes, here’s a breakdown of key home-related deductions and credits that might apply to you. Understanding Tax Deductions vs. Tax Credits Most home-related tax savings come in the form of deductions, which reduce your taxable income.
For example, if you earned $100,000 and claimed $10,000 in deductions, you’d only be taxed on $90,000. Tax credits, on the other hand, directly reduce your tax bill. If you owe $5,000 in taxes and claim a $2,000 credit, your tax liability drops to $3,000. While both are valuable, credits often provide greater savings because they apply directly to the amount you owe. Should You Itemize or Take the Standard Deduction? To claim most home-related deductions, you need to itemize instead of taking the standard deduction.
The 2025 standard deduction amounts are:
● Single or Married Filing Separately: $15,000
● Head of Household: $22,500
● Married Filing Jointly: $30,0001 If your total itemized deductions exceed the standard deduction, it’s worth itemizing to maximize your savings.
Key Home-Related Tax Deductions
1. Mortgage Interest Deduction If you have a mortgage, you may be able to deduct interest on loans up to $750,000 if filing jointly ($375,000 if filing separately). Your lender will send you Form 1098, which details the interest paid for the year. If your itemized deductions exceed the standard deduction, this could be a significant way to lower your taxable income.2
2. Property Tax Deduction You can deduct state and local property taxes, but there is a $10,000 cap for combined state income, sales, and property taxes. However, not all taxes and fees qualify. Special assessments for home improvements (like a new sewer line) and local service fees (trash collection, water bills) are not deductible.3
3. Home Equity Loan Interest Deduction If you took out a home equity loan or HELOC, interest may be deductible only if the funds were used for home improvements that substantially increase your property’s value. Using the loan for debt consolidation, vacations, or everyday expenses does not qualify. Keep receipts and records to prove how the funds were used.4
4. Energy-Efficient Home Upgrades One of the most valuable tax benefits for homeowners is the Residential Clean Energy Tax Credit, which allows you to claim up to 30% of qualifying expenses for upgrades like:
● Solar panels.
● Energy-efficient windows and doors.
● Geothermal heat pumps.
● Insulation improvements. Because this is a credit (not a deduction), it directly reduces your tax bill. Some states also offer additional incentives, so be sure to check your local programs.5, 6
5. Home Improvements and Capital Gains Tax
Most home improvement expenses aren’t immediately deductible, but they can reduce your capital gains tax when you sell. When you sell your home, your taxable profit (capital gain) is the difference between your sale price and your adjusted cost basis (your original purchase price plus the cost of capital improvements). For example, if you bought your home for $300,000, invested $50,000 in major improvements (like a kitchen remodel), and sold it for $500,000, your taxable gain would be $150,000 instead of $200,000.
Capital Gains Exclusion:
● Single homeowners can exclude up to $250,000 in capital gains.
● Married couples filing jointly can exclude up to $500,000 if they lived in the home for at least two of the past five years. Keeping records of improvements can help reduce taxable gains when selling.7
6. Home Office Deduction
If you are self-employed and use part of your home exclusively for business, you may be eligible for a home office deduction. There are two ways to calculate this deduction:
1. Simplified Method – Deduct $5 per square foot, up to 300 square feet.
2. Regular Method – Deduct actual expenses (a percentage of mortgage interest, utilities, maintenance). Employees working remotely do not qualify for this deduction unless they own a business.8
Final Thoughts
Owning a home offers significant financial benefits, but many homeowners don’t take full advantage of tax savings. By understanding which deductions and credits apply to you, you can reduce your tax bill and make the most of homeownership. Since tax laws change frequently, consulting a tax professional is always a smart move to ensure compliance and maximize savings.
MORE DETAILS ABOUT TAX SAVINGS FOR HOMEOWNERS
This is not professional tax advice. Please consult your tax professional. If you need a referral to a tax professional in Greater Charlotte, contact Nina Hollander with Coldwell Banker Realty.
Sources:
1. IRS - https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025
2. IRS - https://www.irs.gov/forms-pubs/about-publication-936
4. IRS - https://www.irs.gov/publications/p936
5. US News - https://money.usnews.com/money/personal-finance/articles/how-consumers-can-save-with-the-new-climate-tax-breaks
6. IRS - https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
7. Bankrate - https://www.bankrate.com/real-estate/capital-gains-tax-on-real-estate/#avoiding-during-home-sale
8. NOLO - https://www.nolo.com/legal-encyclopedia/what-home-improvements-tax-deductible.html
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