Maximize Your Tax Savings: Essential Deductions for Homeowners

Maximize Your Tax Savings: Essential Deductions for Homeowners in 2025

1. Mortgage Interest Deduction

Homeowners can deduct mortgage interest on loans up to $750,000 if single or married filing jointly, or $375,000 if married filing separately, per the IRS (source).For mortgages issued before Dec. 16, 2017, the cap is higher: $1 million (or $500,000 if married filing separately).

 

Your filing status affects your deductions, tax liability, and eligibility for credits. The five filing statuses are:
✔ Single
✔ Married filing jointly
✔ Married filing separately (if filing separately reduces your tax burden)
✔ Head of household (if you pay more than half of living expenses for yourself and a dependent)
✔ Qualifying surviving spouse

2. Property Tax Deduction

Homeowners can deduct property taxes as part of the $10,000 state and local tax (SALT) cap.

“That threshold is a combination of state income taxes and property taxes, and most families who own homes will exceed that just with their state taxes unless they live in one of the few states without a state income tax,” says Crystal Stranger, senior tax director and CEO of OpticTax.com.

This deduction is especially valuable for homeowners in states with high property and income taxes.

3. Home Office Deduction

If you work from home, you may qualify for a home office deduction, but strict rules apply.

 

“In general, you have to be self-employed, an independent contractor, or a gig economy worker, and the space must be exclusively used as your home office and primary place of business,” says Bobbi Rebell, CFP, and personal finance expert at BadCredit.Org.

 

This deduction can cover a portion of your mortgage, insurance, utilities, property tax, repairs, and maintenance if you meet the criteria.

 

 

✅ Two ways to claim:

1. Simplified method – Deduct $5 per square foot, up to 300 square feet.
2. Regular method – Uses percentage of home used for business and actual expenses (IRS Source).

 

“You can deduct a portion of your entire house’s expenses, but be careful—the IRS is strict on these claims and often disallows them during audits,” warns Robert Persichitte, CPA, CFP, and financial planner at DeLAGify Financial.

4. Energy-Efficient Home Improvements

Homeowners who invest in energy-efficient upgrades may qualify for a tax credit of up to 30% of the upgrade costs.

 

“Homeowners who make qualifying energy-efficient improvements, such as installing solar panels or energy-efficient HVAC systems, may be eligible for a credit of up to 30% of the cost of these upgrades,” says Cummings.

 

✅ Annual credit limits include (IRS Source):

• $1,200 for energy-efficient property costs & home improvements, including:

  • Exterior doors ($250 per door, max $500)
  • Exterior windows & skylights (max $600)
  • Home energy audits (max $150)
• $2,000 per year for qualified heat pumps, water heaters, biomass stoves, or biomass boilers.

5. HOA Fees Deduction

Homeowners Association (HOA) fees can be costly, but in certain cases, they may be tax-deductible.

 

 

✅ When HOA fees are deductible:

• Rental Property – If you rent out your home, you can deduct the portion of HOA fees that applies to rental use (Massey and Company CPA).
• Vacation Rental – If you use the home part-time for vacations and part-time as a rental, you can deduct the portion of fees based on rental use, according to Bobbi Rebell, CFP.
• Home Office – If you have a dedicated home office, you can deduct HOA fees proportionate to your home office space.

 

“If your home office is 15% of your home’s square footage, you can usually deduct 15% of the HOA fees,” explains Rebell.

6. Home Expenses

If you use part of your home exclusively and regularly for business purposes, you may be able to deduct certain home expenses, including:

✅ Mortgage interest
✅ Utilities (electricity, water, internet, etc.)
✅ Maintenance and repairs

 

 

This deduction applies primarily to self-employed individuals, independent contractors, or gig workers who maintain a dedicated home office space. The amount you can deduct depends on the percentage of your home used for business.

 

 

💡 Tip: Keep detailed records of expenses and consult the IRS home office deduction rules to ensure compliance.

7. Mortgage Point Reduction

Mortgage points—also known as discount points or prepaid interest points—are a one-time fee paid to lower the interest rate on a home loan or refinance.

 

“One discount point costs 1% of your home loan amount,” according to Rocket Mortgage (source).

 

With higher interest rates, prepaying points can result in a larger mortgage interest deduction in the first year of homeownership.

 

“In prior years, with interest rates so low, this rarely added up to substantial savings. But if you normally don’t itemize deductions because the standard deduction is higher, front-loading as many costs as possible into one year can make financial sense,” explains Crystal Stranger, senior tax director at OpticTax.

 

Since mortgage points deductions can be complex, consider using a mortgage points tax deduction calculator or consulting a tax professional to determine your potential savings.

8. Medical Home Improvements Deduction

Certain home improvements may be tax-deductible if they are made for medical care for you, your spouse, or your dependents.

 

“Home improvements can be deductible as a medical expense if their purpose is medical care for you, your spouse, or your dependents,” according to Jackson Hewitt (source).

 

✅ Examples of deductible medical home improvements:

• Wheelchair ramps
• Bathroom railings or grab bars
• Widened doorways for accessibility
• Lowered kitchen counters for mobility needs

 

💡 Important: These improvements must be medically necessary rather than just general upgrades. Only the portion of the expense that does not increase home value is deductible. Keep all receipts and documentation in case of an audit.

FAQs: Common Questions About Homeowner Tax Deductions

How Do Tax Deductions Work for Homeowners?

The tax benefits you qualify for depend on how you use your property.

 

✅ Primary Residence – Homeowners can claim the big deductions, such as:

• Mortgage interest
• Property taxes
• Mortgage insurance (if applicable)

 

“Each type of homeownership has its own rules, and understanding them can save you thousands,” says Greg Clement, founder and CEO of Realeflow.

 

✅ Rental Property – More tax benefits are available, including deductions for:

• Repairs and maintenance
• Property management fees
• Depreciation of the property’s value

 

✅ House Hacking – If you rent out part of your home, deductions can be split based on the percentage of the home being rented.

✅ Special Circumstances:

• Seniors – Reverse mortgages offer no taxable income and no monthly payments, and some states provide property tax exemptions for seniors.
• Multigenerational Households – If you care for a parent, you may be able to deduct medical expenses, including home modifications for accessibility.

 

Understanding these rules can help maximize your tax savings and reduce your overall tax burden. 🚀

 

Can I Avoid Capital Gains Tax on Property?

Yes, there are a couple of ways to reduce or avoid capital gains tax when selling a property.

 

 

✅ Primary Residence Exclusion

“If you own the home and it is your primary residence, then the first $250,000 ($500,000 if married) of capital gains is tax-free,” says Crystal Stranger, senior tax director at OpticTax.

To qualify:

• You must have owned and lived in the home for at least 2 of the last 5 years before selling.
• The exemption applies only to primary residences, not rental properties.

 

✅ 1031 Exchange for Rental Properties
If you own a rental property, you can defer capital gains taxes using a 1031 exchange. This allows you to “trade” your property for a new rental property without immediately paying taxes.

 

“To have this trade be fully tax-free, the new property must be more expensive and have a bigger loan. Plus, you need to work with a specialized agent to handle the funds and ensure all reporting requirements are met,” Stranger explains.

 

💡 Tip: A 1031 exchange doesn’t eliminate capital gains tax, but it defers it until you sell the new property without another exchange.

Who Pays Property Taxes at Closing?

Property taxes at closing are typically prorated between the buyer and seller based on the closing date.

“In other words, the seller has to pay the prorated amount up to the closing date,” says Bobbi Rebell, CFP, of Bad Credit.

 

✅ If the seller already paid property taxes for the year:

• They will receive a credit from the buyer for the portion of taxes covering the buyer’s ownership period.

 

✅ If the seller has not yet paid property taxes:

• A prorated amount will be collected from both parties at closing.

 

Do You Need a Property Tax Protest?

A property tax protest allows homeowners to dispute the market value of their property as determined by the local tax authority, which can directly lower their property tax bill, according to Onwell.

 

“New owners don’t need to protest their property tax right away, but if they believe their home is overvalued, it can be beneficial,” says Rebell.

 

✅ Benefits of a property tax protest:

• If successful, it lowers your property tax base, reducing future tax increases.
• Many states apply percentage-based increases, so starting with a lower valuation can save money long-term.

 

💡 Tip: If you think your home’s assessed value is too high, it may be worth filing a property tax appeal soon after purchasing.

 

Final Thoughts