2025 Homeowner Tax Changes At a Glance
- The One Big Beautiful Bill Act (OBBBA) introduces tax changes that impact homeowners, including updates to deductions and credits.
- The SALT deduction cap will increase to $40,000 for tax years 2025-2029.
- The mortgage interest deduction limit is now permanent, and Private Mortgage Insurance (PMI) will be treated as deductible mortgage interest beginning in 2026.
Oh, tax season. Everyone’s favorite time of year.
Did you know that homeownership comes with some nice tax breaks? They’re biggest in the early years, when the money may be especially handy.
The One Big Beautiful Bill Act (OBBBA) brought a few big changes that homeowners need to know about to ensure you get your maximum refund when it comes time to file your tax return.
Here’s a quick rundown of home-related deductions (with some tips and common mixups). To claim them, you have to itemize. Get ready to make friends with IRS Schedule A!
1. Mortgage interest
For most homeowners, this is the big one. You can find the total amount of mortgage interest you paid over the last year on Form 1098, which your loan servicer sends out at the end of each year.
This deduction is heftiest in the early years of your loan since most of your monthly payment is going toward interest. Over time, as more goes toward principal, the deduction shrinks.
The amount of the deduction depends on your principal, interest rate, and income tax rates. You can find all this information on your mortgage statement. To give you an idea, here’s an example:
- Mortgage principal and interest: $300,000 loan at 6%
- Federal income tax rate: 25%
- State income tax rate: 8%
- Deduction in the first year of your loan: $6,479
Did you use a home equity loan to renovate? You can usually deduct the interest on that too.
Tip: Itemizing your taxes isn’t always best. To get home-related deductions, you must itemize. Sometimes, though, the simple standard deduction is bigger. Your best option might not be clear. If you’re unsure, consult a tax professional.
The standard deduction for the 2025 tax year is:
- $31,500 for married couples filing jointly, up $1,300 from the 2024 tax year.
- $15,750 for single filers and married individuals filing separately, up $1,150 from the prior year.
- $23,625 for heads of households, up $1,725.
2. Property taxes (also known as the SALT deduction)
And in even bigger news, the biggest change for 2025 tax returns in the increase in State and Local Tax (SALT) deductions!
The cap on SALT deductions for local property tax and state income tax combined is now $40,000.
Note: The full $40,000 cap applies up to certain income thresholds, after which the deductible amount falls back toward the old limit.
First year of homeownership: Prepaids
If you bought a home in the last year, remember to deduct any prepaid property taxes you reimbursed the seller for. Check your Closing Disclosure.
Common mix-up: Escrowed vs. actual taxes
It’s easy to make the mistake of deducting escrowed taxes instead of the taxes you actually paid.
When property taxes go into your escrow account each month, you’re not actually paying them. Your loan servicer does that when the bills come out.
The amount actually paid out is on the annual escrow analysis provided by your servicer. Keep an eye out for that document toward the end of the year.
Common mix-up: Deducting taxes for the wrong year
Some cities bill for the year’s taxes the next year. The year you pay them is the year you deduct them. For example, your 2025 property taxes might be billed in 2026. You would claim the deduction in the 2026 tax year.
Tip: Know tax credits from deductions. Deductions are expenses that lower your tax bill indirectly, by reducing your gross income. Tax credits lower your bill directly: a $1,000 credit lowers your bill by $1,000.
3. Energy credits
You can claim tax credits for the cost of certain energy efficiency improvements. Like efficient doors and windows, insulation, heating equipment, solar panels, and more. Just make sure you keep your receipts!
Tax credits for the Energy Efficiency Home Improvement Credit and Residential Clean Energy Credit are expiring. The law states that any purchases made after Dec. 31, 2025, will no longer qualify for these credits.
The size of the credits and what qualifies are always changing. For details, go to IRS.gov and search for “energy credits.”
4. Mortgage insurance
Good news! The new tax law restores the ability to deduct mortgage insurance premiums. Private mortgage insurance (PMI) and mortgage insurance premium (MIP) are treated the same as mortgage interest.
The amount you can deduct starts to phase out at $100,000 in adjusted gross income. If your adjusted gross income is over $109,000, you can’t deduct anything. That figure applies if you’re single, head of household, or married filing jointly.
Tip: You might qualify for free tax prep. Do you make $58,000 or less, have disabilities, or speak limited English? The IRS’s Volunteer Income Tax Assistance (VITA) program offers free, in-person basic tax-return prep.
5. Home office
If you’re self-employed (not WFH), do you have an office space in your home? If it’s used strictly for business, you can claim a deduction based on its percentage of your home’s square footage.
People often stretch the definition of “home office,” and the IRS knows this. An office space that seems too large could trigger an audit. And remember, you must be self-employed, not an employee working from home.
For details, go to IRS.gov and search for publication 587, “Business Use of Your Home.”
6. Points
Did you pay points to get a better rate on your mortgage? Points are often deductible as interest.
Points are listed in the origination fees on your Closing Disclosure. They should also be on Form 1098 from your loan servicer.
7. Sale of your property
If you sell your home, you probably won’t have to pay capital gains tax on any profit.
You have to meet some basic conditions. For example, the home must be your principal residence, and you must have lived there for two of the previous five years.
Unfortunately, a loss is rarely deductible.
Tip: Document repairs and improvements
Invoices and receipts could support tax deductions someday. Or impress a buyer. Plus, tracking how much you invest in your home can help with budgeting.
Please note: The tax landscape is always changing. The information contained in this post is not intended as, and is not a substitute for, professional tax advice.
