Tax Benefits from Personal Housing
One of the most common questions I get is what “write-offs” one can get for owning or buying a home. There are quite a few tax benefits individuals can utilize even if the house isn’t used for a rental or other type of business. This article briefly goes over all the major tax deductions and credits one can take related to their personal homes. My hope is that readers can confidently minimize their taxes while not worrying about getting into trouble with the IRS!
Itemized Deductions
This will be where you claim most your home-related deductions. Before going into this section, it is important to learn the difference between the standard deduction and itemized deductions. A standard deduction is automatically given to all taxpayers and is based off their filing status. For 2026, single and married filing separately filers get a standard deduction of $16,100, head of household filers get $24,150 and married filing jointly filers get $32,200. There’s also a slight increase if you’re over 64 and/or blind.
Itemized deductions (taken on Schedule A) include a variety of deductions with many of them being housing-related. Taxpayers must choose between taking the standard or itemized deduction, not both. Generally, if itemized deductions exceed the standard deduction then they should take the itemized deduction. This isn’t the case for many homeowners and they effectively don’t get a tax benefit for owning a home.
Most information on home-related itemized deductions will be found on Form 1098 Mortgage Interest Statement which is issued by the lender at the beginning of the year.
Property Taxes
Property taxes are an itemized deduction deducted as part of SALT (State and local taxes). Property taxes are deductible when they are actually paid, not based off when the tax is assessed. For example, if a taxpayer was assessed $5,000 in property taxes for 2026 and in 2027 and paid both years in 2026 then they would be able to deduct $10,000 in 2026 and no deduction for these in 2027.
SALT recently increased the limitation from $10,000 to $40,000 for joint filers, $20,000 for other filing statuses. There is an income phase-out with this increase which starts at $500,000 for joint filers, $250,000 other statuses. This phase-out cannot reduce the deduction to below $10,000.
Mortgage Interest
Mortgage interest used to buy, build or substantially improve your main or second home is able to be taken as an itemized deduction. Mortgage interest on additional or vacation homes is not deductible. For mortgages acquired after December 15th 2017 you can deduct interest incurred on the first $750,000 in loaned amount. Mortgages over $750,000 are subject to a limitation.
PMI (Private Mortgage Insurance)
Starting in 2026, PMI is deductible as part of mortgage interest.
Mortgage Points
Mortgage points, also known as discount points, are a fee you pay your lender upfront to get a lower interest rate on your loan. If you meet all of the following requirements you have the option to deduct it all at once or deduct over the life of the loan:
- Your loan is secured by your main home (main home being the one you ordinarily live in most of the time).
- Paying points is an established business practice in the area where the loan was made.
- The points paid weren’t more than the points generally charged in that area.
- You use the cash method of accounting. This means you report income in the year you receive it and deduct expenses in the year you pay them.
- The points weren’t paid in place of amounts that are ordinarily stated separately on the settlement statement, such as appraisal fees, inspection fees, title fees, attorney fees and property taxes.
- The funds you provided at or before closing, plus any points the seller paid, were at least as much as the points charged. The funds you provided aren’t required to have been applied to the points. They can include a down payment, an escrow deposit, earnest money and other funds you paid at or before closing for any purpose. You can’t have borrowed these funds from your lender or mortgage broker.
- You use your loan to buy or build your main home.
- The points were figured as a percentage of the principal amount of the mortgage.
- The amount is clearly shown on the settlement statement (such as the Settlement Statement, Form HUD-1) as points charged for the mortgage. The points may be shown as paid from either your funds or the seller’s.
If not, you’ll only have the option to deduct over the life of the loan.
Common Housing Expenses that are not Deductible
HOA fees, utilities and home owner’s insurance are common housing expenses that are not deductible. If you know someone who is deducting these then they are likely being deducted on a rental property, their business building or they’re doing something sketchy. You’re also unable to depreciate buildings or other fixtures. With that being said, you should save receipts for major renovations to potentially reduce capital gains if you were to ever sell your home.
Personal Home Exclusion on Sale of Personal Residence
IRC § 121 permits a huge capital gain exclusion of up to $250,000, $500,000 if filing jointly. In order to qualify for this exclusion, the homeowner(s) must meet all of the following requirements:
- Owned the home for at least two of the last five years leading up to date of sale. For a married couple filing jointly, only one spouse needs to meet this requirement.
- Used the home as the primary residence for at least two of the last fives years leading up to date of the sale. For a married couple filing jointly, both spouses must meet this requirement. If it was not used as a primary residence for the full two years then a partial exclusion is available.
- Must not have sold another home within the two years leading up to date of sale.
There are other factors that could lead to automatic disqualification. Due to the potential tax liability, I highly recommend retaining a tax preparer to ensure this is recorded properly.
One nuance to note is that many financial institutions may not issue a Form 1099-S showing the proceeds from the sale of a home if the proceeds is under $500,000. Many tax professionals recommend not even reporting the sale of a home because of this. Regardless, if a Form 1099-S is issued then it will also get reported to the IRS. If you then don’t report the sale then the IRS will see the entire proceeds, assume you missed it on your return and report the entire proceeds without the cost basis or personal home exclusion! I’ve seen many six figure tax bills because of this so at a minimum you should report this transaction when a Form 1099-S was issued.
First-Time Homebuyer Credit
One of the most frustrating questions I get asked is if they can get the first-time homebuyer credit. This credit only applied to homes purchased between April 8th 2008 and September 30th 2010. It was a credit of up to $7,500 and it had to be repaid over 15 years so it was more like an interest-free loan than a tax credit. What makes this question particularly frustrating is that there sort of is a first-time homebuyer credit!
Mortgage Interest Credit
This is the closest we have to a Federal first-time homebuyer credit. It is a nonrefundable credit of up to 50% of mortgage interest, maximum credit of $2,000, claimed through Form 8396. To qualify the taxpayer(s) must not have owned a home within the past three years. This requires a mortgage credit certificate in order to claim. If the house is sold within nine years of purchase then some or all of the credit may need to be repaid. There is both a maximum property value and income phase-out in order to qualify. Every county has it’s own limits.
For Clark county in 2026 it is as follows:
$281,250 maximum house value regardless of household size.
Adjusted Gross Income phase-out for a household size of two or fewer starting at $64,700 and fully phases out at $85,675.
Adjusted Gross Income phase-out for a household size of three or more starting at $74,500 and fully phases out at $97,025.
Due to the limited credit percentage amount, extra documentation requirement and potential repayment it’s almost always more beneficial to take mortgage interest as an itemized deduction. If you happen to be within the property value and income limits and are expected to take the standard deduction over the next decade after buying a home then this may be worth considering. With that being said, I’ve yet to prepare or even see a return with this form, but will keep this in the back of my mind when clients tell me they’re buying a home.
Sources: