Homeowner tax deductions and documents: What you need to know before you file
Owning a home changes your tax picture, but not always in obvious ways.
Some homeowners assume buying a home automatically leads to a larger refund. Even long-standing homeowners can overlook deductions or credits that could meaningfully reduce their tax bill.
Whether you purchased, sold, refinanced, renovated, or simply continued paying your mortgage in 2025, your tax return may require closer review.
In this guide, Splitero explains what homeowners should evaluate before filing their 2025 federal tax return in 2026, including deductions, exclusions, credits, and documentation requirements.
Should you take the standard deduction or itemize?
The most important decision for homeowners isn't about mortgage interest or property taxes but whether itemizing deductions makes financial sense at all.
You should only itemize if your total eligible deductions exceed the standard deduction for your filing status.
2025 Standard Deduction Amounts
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If your combined mortgage interest, property taxes, charitable contributions, and other potential itemized deductions appear to be lower than your standard deduction, it may make sense to compare both approaches before filing. In some cases, the standard deduction results in lower taxable income, but the only way to know for sure is to run the numbers based on your full return.
The IRS lists more detailed scenarios or circumstances on its site to help you understand what makes the most sense for your situation.
Did you make interest payments on home-related loans?
If you paid interest on a mortgage, refinance, home equity loan, or HELOC in 2025, you may be able to deduct it, but only in certain situations.
For tax purposes, the IRS generally allows a deduction when all of the below apply:
- The loan is secured by your home
- The money was used to buy, build, or substantially improve that same home
- You itemize deductions on your return
The type of loan does not determine deductibility. What matters is how the funds were used.
If the loan proceeds were used for personal expenses, such as paying off credit cards, covering tuition, or handling everyday costs, the interest is generally not deductible, even if your home was used as collateral.
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There are also IRS limits on the total amount of mortgage debt eligible for the deduction, based on when the loan originated and your overall balance. These limits are explained in IRS Publication 936.
If you paid $600 or more in mortgage interest during the year, your lender will generally send you or make Form 1098 (Mortgage Interest Statement) available. You'll use the information on Form 1098 to calculate your deductible interest if you itemize.
If you refinanced or had multiple loans during the year, review all Form 1098 statements to ensure you are including eligible interest and excluding interest that does not qualify.
Do your property tax payments qualify for the SALT deduction?
If you itemize deductions, you may be able to deduct property taxes you paid in 2025. However, property taxes are not deducted on their own. They are combined with certain other state and local taxes under what is commonly called the state and local tax (SALT) deduction.
This means your property tax deduction is calculated together with either:
- State income taxes, or
- State and local sales taxes (if you choose to deduct sales taxes instead of income taxes)
For tax year 2025, the SALT deduction is generally limited to:
- $40,000 per return, or
- $20,000 if married filing separately
For higher-income taxpayers, this limit may be reduced through an income-based phase-down. However, under current law, the allowable SALT deduction generally does not fall below $10,000 (or $5,000 if married filing separately).
What taxes count toward SALT?
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If your combined total of property taxes and state income (or sales) taxes is below your applicable limit, you may be able to deduct the full amount, assuming you itemize.
If your combined total exceeds your applicable limit, your deduction is generally capped at the allowable maximum for your filing status and income level.
For example, if you paid $18,000 in property taxes and $12,000 in state income taxes in 2025, your combined SALT total would be $30,000. If your filing status and income level allow for the full $40,000 limit, you may be able to deduct the full $30,000. If your income triggers a phase-down, the allowable deduction may be lower.
What should you check before filing?
To estimate your SALT deduction, you should review two main values:
- The total property taxes actually paid during the calendar year (from county statements or mortgage escrow records)
- Your total state income tax paid (or your calculated sales tax amount, if electing that method).
Because the SALT deduction only applies if you itemize, it is often most useful to evaluate it as part of your overall comparison between itemizing and taking the standard deduction.
Did you sell a home in 2025?
If you sold your primary residence in 2025, you may qualify to exclude a portion of the profit from taxation.
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You may qualify for the exclusion if you:
- Owned the home for at least two years, and
- Lived in the home as your primary residence for at least two of the five years before the sale.
The two years do not need to be consecutive, but they must fall within the five-year window before the sale.
If you meet these requirements and your gain falls within the exclusion limits, you may not owe federal capital gains tax on that portion of the profit. If your gain exceeds the exclusion amount, the remaining portion may be subject to capital gains tax depending on your broader tax situation.
Even if you believe you qualify for the full exclusion, you may still need to report the sale on your return, especially if you receive Form 1099-S. If you used the home as a rental or business property at any point, additional rules may apply.
Because the capital gains rules can intersect with rental use, home offices, or partial-year residency, reviewing your facts carefully can help ensure accurate reporting.
Are you a self-employed homeowner?
If you are self-employed and use part of your home for business, you may be able to claim the home office deduction. This deduction is designed for business owners, freelancers, and independent contractors who operate from home. Most W-2 employees can't claim this under current federal rules, though limited exceptions may apply.
To qualify, the space must be:
- Used exclusively for business
- Used regularly
- Your principal place of business
There are two calculation methods:
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Under the actual expense method, deductible costs may include a portion of mortgage interest, property taxes, utilities, insurance, and maintenance, based on the percentage of the home used for business.
Choosing between methods depends on your specific expenses and record-keeping preferences. Running the numbers both ways may help determine which produces the greater deduction.
Did you make energy-efficiency improvements to your home?
If you made qualifying energy-efficient upgrades to your home in 2025, you may be eligible for a federal tax credit.
Unlike a deduction, which reduces your taxable income, a tax credit reduces your tax liability dollar-for-dollar. That means a $1,000 credit generally reduces your tax bill by $1,000.
The Energy Efficient Home Improvement Credit was expanded under the Inflation Reduction Act and currently allows homeowners to claim 30% of eligible costs. Depending on the upgrades, the annual credit may be up to $3,200.
Eligible improvements generally include certain energy-efficient upgrades to your primary residence.
Examples of Potentially Eligible Improvements
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Because eligibility rules vary by product type and installation date, reviewing IRS guidance before filing can help ensure you claim the correct amount.
Prepping for filing your 2025 taxes
Owning a home does not automatically mean your tax return will be more complex, but certain events during the year can introduce additional considerations.
If you purchased, sold, refinanced, completed significant improvements, used home equity for renovations, or installed qualifying energy upgrades in 2025, it may be worth reviewing those transactions carefully before filing.
In many cases, the key question comes back to two decisions:
- Does itemizing provide a greater benefit than the standard deduction?
- Do any of your home-related activities qualify for exclusions or credits?
Running both scenarios, standard deduction versus itemized, can help clarify which approach results in lower taxable income. Reviewing documentation before filing can also help ensure that improvements, credits, or exclusions are properly reflected.
If your situation includes multiple real estate transactions or partial-year residency, additional review may be appropriate. A qualified tax professional can help evaluate how your specific facts interact with current tax rules.
Disclaimer: Always consult with a licensed tax professional when preparing your tax filings to ensure you are doing the right thing for your specific financial situation.
Frequently Asked Questions
Is homeowner’s insurance tax-deductible?
In most cases, homeowner's insurance premiums are not deductible for a primary residence. The IRS generally treats them as personal expenses.
However, a portion of homeowner’s insurance may be deductible if the home is used for business purposes (such as a qualifying home office) or if the property is a rental. In those cases, the deductible amount is typically limited to the business or rental-use percentage of the home. You may also be eligible to deduct any mortgage interest payments you made during the tax year.
See IRS Publication 936 and Publication 587 for related guidance.
Do I have to report the sale of my home if I qualify for the capital gains exclusion?
Possibly. Even if your full gain qualifies for exclusion (up to $250,000 for single filers or $500,000 for married filing jointly), you may still need to report the sale on your tax return, particularly if you receive Form 1099-S.
If part of the home was used for rental or business purposes, additional reporting may also be required. Reviewing IRS Publication 523 can help clarify your reporting obligations.
Can I deduct property taxes if I take the standard deduction?
No. Property taxes are part of itemized deductions. If you take the standard deduction instead of itemizing, you generally cannot separately deduct property taxes.
Because of this, it’s often helpful to compare your total itemized deductions, including property taxes, mortgage interest, and other eligible expenses, against your standard deduction before filing.
This story was produced by Splitero and reviewed and distributed by Stacker.
