Owning a Home Has Tax Advantages But There Are Limits

It's true that owning a home instead of renting can result in extra deductions at tax time. The cost of ownership is reduced by any tax savings that you are eligible for — but they may not be as much as you expect.

Here's the story if you're a first-time homeowner or thinking about buying or "moving up."

Home Ownership Write-Offs Versus Renting

As far as the IRS is concerned, the cost of renting a personal residence is generally a nondeductible personal expense. (An exception is if you're self-employed and use part of a rented home for business purposes, such as a deductible home office.)

In contrast, the tax law allows you to write off home-ownership expenses as itemized deductions. Under current law, you can generally claim an itemized deduction for:

• Interest on up to $750,000 of mortgage debt used to acquire or improve a first or second residence ($375,000 if you use married filing separate status).
• State and local property taxes (SALT) on as many personal residences as you own, subject to a $40,000 combined limit for SALT property taxes and SALT income taxes for 2025 ($5,000 if you use married filing separate status). For 2026, the deduction limit increases to $40,400 and increases by one percent over the previous year's amount in 2027-2029. The deduction is phased out for high-income taxpayers. The SALT deduction limit will return to $10,000 in 2030.

The Standard Deduction Factor

If you've been claiming the standard deduction on your tax return, buying a home may not generate the extra write-offs you were hoping for. Why? The standard deduction is a tax-law "freebie." You don't need any expenses to claim it. For 2025, the standard deduction amounts are:

• $31,500 if you're married and file jointly.
• $23,625 for a head of household.
• $15,750 if you file as a single person.

If your itemized write-offs for the year add up to less than the standard deduction, you simply forgo itemizing and claim the standard deduction.

Most individuals claim the standard deduction until they buy a home. Then, thanks to mortgage interest and property taxes, they have enough write-offs to come out ahead by itemizing.

However, homebuyers should know that, since they already benefit from the standard deduction, only the incremental amount of deductions from itemizing (the excess of total itemized deductions over the standard deduction) provides any actual tax benefit.

Conclusion

There are home ownership tax angles that some buyers may not understand. Overall, owning a home usually works out to be a tax-saving proposition. And if you eventually sell for a big gain down the road, the tax results can be much better if you're able to take advantage of the home sale gain exclusion privilege. It allows a qualified married couple to avoid paying federal income tax on up to $500,000 of home-sale profit ($250,000 for a qualified single filer).