| Product or pathway | Loan limit or typical range | Interest rate (APR) | Eligibility (high level) | How to apply |
|---|---|---|---|---|
| 30-Year Fixed-Rate Mortgage | Typically up to $766,550 (conforming limit); Jumbo loans higher | Approx. 6.5% – 7.5% (as of late 2024, indicative) | Good credit (FICO 620+), stable income, low debt-to-income | Banks, credit unions, online lenders; pre-approval recommended |
| 15-Year Fixed-Rate Mortgage | Similar to 30-year conforming limits | Approx. 6.0% – 7.0% (indicative, often lower than 30-year) | Stronger financial position, ability to afford higher monthly payments | Banks, credit unions, online lenders; often preferred for faster equity build-up |
| Home Equity Line of Credit (HELOC) | Up to 80-90% of home equity (minus outstanding mortgage) | Variable, approx. 8.0% – 10.0% (indicative, tied to prime rate) | Significant home equity, good credit, stable income | Banks, credit unions; often requires an appraisal |
| Cash-Out Refinance | New loan amount up to 80% of home value (pays off old mortgage) | Approx. 6.5% – 7.5% (indicative, similar to new purchase rates) | Sufficient home equity, good credit, stable income, clear purpose for funds | Mortgage lenders; involves a new loan application and closing costs |
Understanding Your Homeownership Tax Benefits in 2026
Owning a home can offer significant tax advantages, but the rules for claiming tax deductions when you own a home have evolved, especially for the 2026 tax year. Key changes stemming from the Tax Cuts and Jobs Act (TCJA) of 2017 continue to impact how homeowners deduct mortgage interest and property taxes.
For many, the primary deductions revolve around mortgage interest and state and local taxes (SALT), which includes property taxes. But understanding the specific limits and eligibility criteria is crucial to maximize your savings.
What Mortgage Interest Can You Deduct on Your 2026 Taxes?
For the 2026 tax year, homeowners can generally deduct interest paid on a mortgage used to buy, build, or substantially improve their primary home or a second home. The crucial limit here is the loan amount: you can only deduct interest on up to $750,000 of qualified acquisition debt. This limit applies to mortgages taken out after December 15, 2017. If your mortgage was originated on or before that date, the previous limit of $1 million still applies.
For example, if you purchased a home in 2020 with a $900,000 mortgage, you can only deduct the interest attributable to the first $750,000 of that debt. The interest on the remaining $150,000 is not deductible. This can significantly reduce the tax benefit for homeowners in high-cost housing markets.
It’s important to differentiate between acquisition debt and home equity debt. Interest on a home equity loan or line of credit (HELOC) is only deductible if the funds were used to buy, build, or substantially improve the home securing the loan. If you took out a HELOC to pay for a vacation or consolidate credit card debt, that interest is generally not deductible, even if the HELOC is secured by your home.
We often see confusion around this point. Many assume any interest on a home-secured loan is deductible, but the IRS is quite specific about the use of funds. Always keep records detailing how you used any home equity loan proceeds to justify the deduction.
How Does the SALT Cap Affect Property Tax Deductions?
The State and Local Tax (SALT) deduction cap remains a significant factor for homeowners in 2026. This cap limits the total amount of state and local income taxes, sales taxes, and property taxes you can deduct to $10,000 per household. This limit applies whether you file as single, married filing jointly, or head of household.
Consider a homeowner in New Jersey who pays $12,000 in property taxes and $8,000 in state income taxes annually. Before the SALT cap, they could have deducted $20,000. Under the current rules, their deduction is capped at $10,000, effectively reducing their potential tax savings by half. This cap disproportionately affects residents in states with high property values and state income tax rates, such as California, New York, and Illinois.
The SALT cap is scheduled to expire after the 2025 tax year, meaning it could potentially revert to unlimited deductions for the 2026 tax year and beyond. However, as of this writing, the cap is still in effect for 2026 planning. Any legislative changes would need to be closely monitored. For now, we advise planning under the assumption that the $10,000 limit remains.
The cap applies to the total of all state and local taxes paid, not just property taxes. So, if your state income tax alone reaches $10,000, you can’t deduct any property taxes, even if they are substantial.
Can You Deduct Points Paid on Your Mortgage?
Yes, “points” paid on a mortgage can be deductible, but the rules are specific. Points, also known as origination fees or discount points, are essentially prepaid interest. They are typically expressed as a percentage of the loan amount, where one point equals 1% of the loan.
If you pay points to acquire your main home, you can generally deduct them in the year you pay them, provided certain conditions are met. These conditions include: the loan must be secured by your main home, paying points must be an established business practice in your area, and the points must not exceed the amount generally charged in your area. The amount of points must also be clearly shown on your settlement statement (Form HUD-1 or Closing Disclosure).
For example, if you take out a $400,000 mortgage and pay 2 points, that’s $8,000. If all conditions are met, you could deduct that $8,000 in the year you closed on the loan. However, if you paid points for a refinance, a home equity loan, or a loan for a second home, you usually cannot deduct the full amount in the year paid. Instead, you must spread the deduction over the life of the loan. A 30-year mortgage means you’d deduct 1/30th of the points each year.
One wrinkle: if you refinance your mortgage and paid points on the original loan, and you still have points left to deduct, you can deduct any remaining points in the year of the refinance. This accelerates the deduction.
What Other Home-Related Expenses Offer Tax Breaks?
Beyond mortgage interest and property taxes, a few other home-related expenses can offer tax benefits, though they are often less common or subject to stricter rules.
- Home Improvements for Medical Care: If you make capital improvements to your home primarily for medical care (e.g., installing a ramp for wheelchair access, modifying bathrooms), and these improvements don’t increase the value of your home, or only minimally, the costs can be deductible as medical expenses. If the improvements do increase your home’s value, you can only deduct the amount that exceeds the increase in value. This deduction is subject to the general medical expense threshold (7.5% of Adjusted Gross Income for 2026).
- Energy-Efficient Home Improvements: The Inflation Reduction Act of 2022 enhanced tax credits for certain energy-efficient home improvements. For 2026, you can claim the Energy Efficient Home Improvement Credit for qualified expenditures like new exterior doors, windows, skylights, insulation, heat pumps, and energy-efficient furnaces. This credit is for 30% of the cost, up to certain annual limits (e.g., $1,200 total annual limit for most improvements, but higher for heat pumps and biomass stoves).
- Moving Expenses (for military): For most taxpayers, moving expenses are no longer deductible. However, active-duty military members who move due to a permanent change of station can still deduct unreimbursed moving expenses.
- Home Office Deduction: If you use a portion of your home exclusively and regularly as your principal place of business, you might qualify for a home office deduction. This is primarily for self-employed individuals. Employees generally cannot claim this deduction. You can use the simplified method (deducting $5 per square foot of home office space, up to 300 square feet) or the regular method (calculating actual expenses like a portion of utilities, insurance, depreciation). We find that many self-employed individuals overlook this, especially if they work from home full-time.
When Does Refinancing Impact Your Mortgage Interest Deduction?
Refinancing a mortgage can impact your interest deduction in several ways, primarily concerning the $750,000 acquisition debt limit and the deductibility of points.
If you refinance your original mortgage, the new loan is generally treated as acquisition debt up to the amount of the remaining principal balance of the old mortgage. If you take out a larger loan than your old mortgage balance (a “cash-out” refinance), the additional cash received is only considered acquisition debt if it’s used to substantially improve your home. If you use the cash for other purposes, the interest on that additional amount is not deductible.
For example, if you had an original mortgage balance of $400,000 and refinanced for $500,000, taking $100,000 cash out, the interest on the first $400,000 is deductible. The interest on the $100,000 cash-out portion is only deductible if you spent that $100,000 on home improvements. If you used it to pay off student loans, that interest is not deductible.
As mentioned earlier, points paid on a refinance must be amortized over the life of the new loan, rather than deducted in full in the year they were paid. This means you deduct a small portion each year. If you later sell your home or refinance again, any remaining un-deducted points can be fully deducted in that year.
So, what does this actually cost you? A $3,000 fee for points on a 30-year refinance would only yield a $100 deduction per year, stretching the tax benefit out considerably compared to an original purchase.
How Do You Claim These Deductions on Your Federal Return?
To claim tax deductions when you own a home, you typically need to itemize your deductions on Schedule A (Form 1040), Itemized Deductions. This means you forgo the standard deduction, which for 2026 is projected to be around $14,600 for single filers and $29,200 for married couples filing jointly (these are estimates and subject to change by the IRS).
You’ll report your mortgage interest on Line 8a of Schedule A, using the information provided on Form 1098, Mortgage Interest Statement, which your lender sends you. This form shows the total interest you paid during the year. Property taxes are reported on Line 5b of Schedule A, combined with state and local income or sales taxes, subject to the $10,000 SALT cap.
For points, if you deduct them in the year paid for an acquisition mortgage, they are generally included in the amount on Form 1098. If you are amortizing points from a refinance, you’ll need to calculate the annual deductible portion yourself and keep good records. For the home office deduction, self-employed individuals will use Form 8829, Expenses for Business Use of Your Home, or the simplified method directly on Schedule C.
Most tax software programs, like TurboTax or H&R Block, will guide you through these entries once you indicate you own a home and want to itemize. But it’s your responsibility to ensure the information is accurate and you meet all eligibility requirements. We recommend keeping all relevant documents—Form 1098, property tax bills, closing disclosures, and records of home improvement expenses—for at least three years after filing.
Navigating Uncommon Homeownership Tax Scenarios
Homeownership tax deductions, while often straightforward, can present unique challenges in specific situations. One common misconception arises with co-ownership. If you co-own a home with someone who isn’t your spouse, each owner can deduct their share of the mortgage interest and property taxes paid, up to the individual limits. For instance, if two unmarried individuals co-own a home with a $700,000 mortgage, each can deduct interest on their portion, effectively utilizing the $750,000 limit per taxpayer, not per property.
Another scenario involves renting out a portion of your home. If you rent out a room or a separate unit, you become a landlord and must report rental income and can deduct related expenses, including a portion of your mortgage interest, property taxes, utilities, and depreciation, on Schedule E (Supplemental Income and Loss). This separates the personal use portion from the rental portion, requiring careful allocation of expenses. The mortgage interest and property taxes allocated to the rental portion are not subject to the personal itemized deduction limits, but rather are business expenses against rental income.
Finally, if you sell your home, there are rules regarding the exclusion of gain from the sale. You can exclude up to $250,000 of gain ($500,000 for married couples filing jointly) if you owned and lived in the home as your main home for at least two of the five years leading up to the sale. This is a significant benefit that helps homeowners avoid capital gains tax on profits from their primary residence.
Your Checklist for Maximizing Home Tax Deductions
- Gather Your Documents: Collect your Form 1098 (Mortgage Interest Statement), property tax bills, and closing disclosures for any new loans or refinances.
- Track Home Improvement Spending: Keep detailed records of any expenses for substantial home improvements, especially if financed by a HELOC or cash-out refinance.
- Review Your SALT Payments: Tally your total state income taxes, local income taxes, and property taxes paid to understand if you hit the $10,000 cap.
- Evaluate Itemizing vs. Standard Deduction: Compare your potential itemized deductions (including mortgage interest, SALT, and other items) against the standard deduction for your filing status.
- Consider Energy Credits: Check if any energy-efficient upgrades you made qualify for tax credits.
- Assess Home Office Eligibility: If self-employed, determine if you meet the exclusive and regular use test for a home office deduction.
- Consult a Tax Professional: For complex situations, or if your deductions are substantial, seek advice from a qualified tax advisor.
- Stay Informed on Legislation: Keep an eye on potential changes to the SALT cap or other tax laws that could affect 2026 deductions.
