5 Homeowner Tax Deductions Most People Forget to Claim

Fact-checked by the The Finance Tree editorial team

Homeowner tax deductions can reduce your federal tax bill significantly — yet millions of filers leave money on the table every year. According to IRS Topic No. 505, eligible homeowners can deduct mortgage interest, state and local taxes, and several other expenses that most people never think to claim. If you’re not itemizing these deductions, you may be overpaying.

Tax law changes from the Tax Cuts and Jobs Act (TCJA) of 2017 shifted what homeowners can deduct — and many filers still haven’t updated their strategy to match the current rules.

Is Mortgage Interest Still One of the Best Homeowner Tax Deductions?

Yes — the mortgage interest deduction remains one of the most valuable homeowner tax deductions available, allowing you to deduct interest paid on loans up to $750,000 for homes purchased after December 15, 2017. For older mortgages, the limit is $1 million.

Your lender sends a Form 1098 each January showing exactly how much interest you paid. That figure goes directly on Schedule A of your federal return. In the early years of a mortgage, interest makes up the majority of each payment — so this deduction is especially powerful for newer homeowners.

According to the Tax Policy Center, roughly 13.7% of tax filers itemized deductions in 2019, down from nearly 31% before the TCJA doubled the standard deduction. That means millions of homeowners may be filing without capturing interest they are legally entitled to deduct.

Can You Deduct Property Taxes as a Homeowner?

Yes, but with a cap. The State and Local Tax (SALT) deduction lets homeowners deduct up to $10,000 per year ($5,000 if married filing separately) in combined state income taxes and property taxes. This limit was introduced by the TCJA and is currently set to expire after 2025.

If you pay property taxes through an escrow account, check your annual mortgage statement — lenders itemize those payments. Only taxes actually paid during the tax year are deductible, not amounts simply held in escrow. If you made a lump-sum payment or had supplemental tax bills, those count too.

What the SALT Cap Means for High-Tax States

Homeowners in states like California, New York, and New Jersey often pay property taxes well above $10,000 alone. According to the Tax Foundation’s SALT deduction data, the average SALT deduction claimed before the cap was $22,000 in high-tax states — meaning many filers now lose more than half their previously claimable amount.

Does Working From Home Qualify for a Homeowner Tax Deduction?

It depends on your employment status. Self-employed homeowners and independent contractors can deduct home office expenses; W-2 employees currently cannot, following TCJA changes that eliminated the employee business expense deduction through 2025.

To qualify, the space must be used regularly and exclusively for business. The IRS offers two methods: the simplified method ($5 per square foot, up to 300 square feet) and the regular method, which calculates the actual percentage of your home used for business and applies it to real expenses like utilities, insurance, and depreciation.

If you work from home and run a side business or freelance operation, this deduction can be substantial. Our detailed guide on how to deduct home office expenses if you work from home walks through both calculation methods with examples.

What Energy Efficiency Credits Can Homeowners Claim?

The Energy Efficient Home Improvement Credit, expanded by the Inflation Reduction Act of 2022, allows homeowners to claim 30% of the cost of qualifying upgrades, up to $3,200 per year. This is a tax credit — not a deduction — meaning it reduces your tax bill dollar for dollar.

Qualifying improvements include heat pumps, energy-efficient windows, exterior doors, insulation, and central air conditioning systems. A separate provision, the Residential Clean Energy Credit, covers solar panels and battery storage at 30% of cost with no annual cap through 2032.

According to ENERGY STAR’s federal tax credit guide, homeowners who installed qualifying heat pumps in 2023 could claim up to $2,000 for that single item alone. These credits stack, so multiple upgrades in the same year multiply the savings. If you’re planning renovations, tracking these alongside your broader sinking fund strategy helps align tax timing with big expenditures.

Are Mortgage Insurance Premiums Still Deductible?

Private Mortgage Insurance (PMI) premiums were deductible for qualifying homeowners in recent tax years, but this deduction has historically been subject to congressional renewal. As of the 2021 tax year, Congress extended the deduction — check the IRS’s annual tax adjustments page to confirm current-year eligibility before filing.

The deduction phases out as adjusted gross income (AGI) rises above $100,000 (single or married filing jointly) and is fully eliminated at $109,000. If your income falls below that threshold and you’re still paying PMI, the deduction can cover the full annual premium — which averages $30 to $70 per month according to the Urban Institute’s housing research.

If PMI costs are eating into your budget, it may also be worth exploring whether you’ve built enough equity to cancel coverage — and reviewing your overall financial picture. Our overview of financial goals to set in your 30s covers equity milestones worth tracking as a homeowner.

Frequently Asked Questions

What homeowner tax deductions can I claim if I take the standard deduction?

Almost none of the major homeowner deductions — including mortgage interest, property taxes, and PMI — are available if you take the standard deduction, because they require itemizing on Schedule A. The one exception is the Energy Efficient Home Improvement Credit, which is a tax credit claimed on Form 5695 and available regardless of whether you itemize.

How do I know if itemizing homeowner tax deductions is worth it?

Itemizing is worth it when your total eligible deductions exceed the standard deduction for your filing status — $14,600 for single filers and $29,200 for married filing jointly in 2024. Add up your mortgage interest, SALT, and any other deductible expenses. If the total clears that threshold, itemizing saves you money.

Can I deduct home improvement costs on my taxes?

Generally, no — standard home improvements are not deductible in the year you make them. However, improvements that qualify for energy credits (like solar panels or heat pumps) generate a tax credit. Capital improvements that increase your home’s value also raise your cost basis, which can reduce capital gains tax when you sell.

Is the mortgage interest deduction worth it in 2025?

It depends on your loan balance and interest rate. With a $400,000 mortgage at 7%, you’d pay roughly $28,000 in interest in year one — well above the standard deduction threshold for a single filer. In that scenario, itemizing is clearly beneficial. Lower balances or older loans in later amortization stages may produce less interest, making the standard deduction more competitive.

Do homeowner tax deductions apply to a second home or vacation property?

Yes, with limits. Mortgage interest on a second home is deductible, but the $750,000 loan limit applies across all residences combined. If you rent out the property for more than 14 days per year, different rules apply and you’ll need to allocate deductions between personal and rental use. Tracking this correctly alongside your broader net worth tracking strategy keeps your financial picture accurate.

What records should I keep to support homeowner tax deductions?

Keep Form 1098 from your lender, property tax statements, receipts for any energy-efficiency upgrades, and home office measurements if applicable. The IRS recommends retaining records for at least three years from the date you file, or six years if you underreported income by more than 25%. Also check for hidden fees on financial accounts that may affect your reported deductions.