Tax Benefits of Owning a Home: How Homeownership Can Lower Your Tax Bill

Thinking about buying a home? Beyond having a place that’s yours, homeownership can come with meaningful tax advantages that may reduce your overall cost of living. Here’s a clear guide to the most common U.S. tax perks—plus practical tips to make the most of them.

1) Mortgage Interest Deduction

For many homeowners who itemize deductions, mortgage interest is the largest write-off.

• What it is: You can generally deduct interest paid on mortgage debt used to buy, build, or substantially improve your primary (and sometimes a qualified secondary) residence, up to IRS-set limits.

• Why it matters: Early in your loan, most of your payment is interest—so the deduction can be significant.

• Pro tip: Points paid to lower your rate may be deductible in the year paid (for a primary residence) or amortized over the loan term.

2) Property Tax Deduction (Within SALT Limits)

Homeowners who itemize can also deduct state and local taxes (SALT)—including property taxes—subject to the federal cap.

• What it is: You may deduct a combination of state income or sales taxes plus property taxes, up to the current SALT cap (consult the latest IRS rules).

• Why it matters: Property taxes can be a sizable annual cost; deducting them helps offset your tax burden.

• Pro tip: If you’re close to the cap, timing your payment (when allowed) can sometimes improve your deduction strategy—talk with a tax pro.

3) Capital Gains Exclusion When You Sell

Homes can appreciate—and the tax code recognizes that primary residences aren’t just investments; they’re places to live.

• What it is: If you sell your primary residence after meeting the ownership and use tests, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly.

• Why it matters: This exclusion can dramatically reduce or eliminate capital gains tax on a profitable sale.

• Pro tip: Keep records of capital improvements (roof, kitchen, additions). These increase your cost basis, potentially lowering taxable gain later.

4) Home Office Deduction (Self-Employed)

If you’re self-employed and work from home, there may be an added benefit.

• What it is: Sole proprietors and some LLC owners may deduct a portion of eligible home expenses (e.g., mortgage interest, utilities, insurance) proportional to the space regularly and exclusively used for business.

• Why it matters: This can turn part of everyday housing costs into legitimate business deductions.

• Pro tip: Choose between the simplified method (standard rate per square foot) and the regular method (actual-expense percentage). Keep excellent records.

5) Energy-Efficient Home Credits

Going green can come with tax credits that directly reduce the tax you owe.

• What it is: Federal credits may apply to qualifying energy-efficient improvements (insulation, windows, doors) and clean energy systems (solar panels, certain battery storage).

• Why it matters: Credits can offset a portion of upgrade costs and may improve resale value and monthly utility savings.

• Pro tip: Save product receipts, certifications, and contractor invoices; eligibility and credit percentages vary by improvement and year.

6) HELOC & Refi Interest—When It’s Deductible

Not all interest is treated equally, but some can still help at tax time.

• What it is: Interest on home equity loans/HELOCs and cash-out refis may be deductible only if funds are used to buy, build, or substantially improve the home that secures the loan, subject to IRS limits.

• Why it matters: Using equity for renovations that increase value may offer both lifestyle and tax advantages.

• Pro tip: Keep a paper trail showing how the funds were used for improvements.

7) Local Homestead & State-Level Benefits

Beyond federal rules, many states and counties offer homestead exemptions or credits that reduce property taxes for primary residences.

• What it is: A reduction in your home’s taxable value or a direct credit—rules vary by location.

• Why it matters: These can lower your annual housing costs even if you don’t itemize federally.

• Pro tip: Some programs require you to apply—don’t leave money on the table.

Quick Example (For Illustration Only)

Imagine a first-year homeowner with:

• $380,000 mortgage at a fixed rate

• $11,000 mortgage interest paid

• $6,500 property taxes

• Itemizes deductions

If they’re under the SALT cap, they may deduct up to $11,000 (interest) + allowable SALT (including property tax). Depending on bracket and specifics, that could translate to thousands in tax savings. Results vary—run the numbers with a professional.

How to Maximize Your Tax Benefits

• Track improvements: Maintain a digital folder with invoices, permits, and photos.

• Evaluate itemizing vs. standard deduction annually: The best strategy can change year to year.

• Plan upgrades for credit windows: Time eligible energy projects when credits are available.

• Consult a tax pro: Small rule nuances (e.g., limits, phaseouts) can make a big difference.

Final Thoughts (and Friendly Disclaimer)

This article provides general information, not tax or legal advice. Tax laws change, and your situation is unique—always consult a qualified professional before making decisions.

Ready to Own—And Optimize Your Taxes?

When you’re ready to start your home buying process, call Stacy Hobson, MBA at J Hunter Realty at 901.405.0500. Stacy will guide you through smart strategies—from neighborhood selection to negotiating power—so you can buy confidently and take advantage of the tax benefits of owning a home.