Homeowner Tax Deductions: What You Can and Can’t Write Off
Updated

Key takeaways
- Mortgage interest on up to $750,000 of purchase debt is deductible if you itemize, and that limit is now permanent.
- The cap on state and local taxes (SALT) rose to $40,000 for 2025 through 2029, with a phase-down for incomes above $500,000.
- The deduction for mortgage insurance returns starting with the 2026 tax year, for households with AGI up to about $100,000.
- HOA fees, homeowners insurance and principal are not deductible on a home you live in.
The One Big Beautiful Bill Act, signed July 4, 2025, changed several rules that matter to homeowners. Northern Virginia is one of the places where these changes count most, because our home prices, property taxes and state income taxes are all on the higher side.
I’m not a tax advisor, so confirm your own situation with a CPA. Here’s a plain-English overview to help you plan.
The big three deductions
| Deduction | The rule | Who benefits most |
|---|---|---|
| Mortgage interest | Interest on up to $750,000 of debt used to buy, build or improve your main or second home | Newer buyers with large loans |
| State and local taxes (SALT) | Property tax plus state income tax, capped at $40,000 for 2025 to 2029, phasing down above $500,000 of income | Higher-tax households in Northern Virginia |
| Mortgage insurance | PMI, FHA premiums, VA funding fee and USDA fee, starting with the 2026 tax year; phases out above $100,000 of AGI | Low down payment buyers with moderate incomes |
A Northern Virginia example
Imagine a married couple with $300,000 of household income who buy an $875,000 home with a $700,000 loan at 6.5%. In the first year, their mortgage interest is roughly $45,000. They pay about $9,500 in property tax and about $15,000 in Virginia income tax, for $24,500 of SALT, well under the $40,000 cap.
Their itemized deductions would be roughly $69,500 before charitable gifts. That’s well above the standard deduction for a married couple, so itemizing makes sense. Under the old $10,000 SALT cap, $14,500 of their state and local taxes would have been lost.
When your loan is over $750,000
Only the interest on the first $750,000 of purchase debt counts. If you borrow $900,000 at 6.5%, first-year interest is about $58,500, but only 750/900 of it, roughly $48,750, is deductible. Loans taken out before December 16, 2017 keep the older $1 million limit.
Other things worth knowing
- Points: points you pay to buy your main home are often deductible in the year you buy, if certain conditions are met.
- Home equity debt: interest on a HELOC or home equity loan is deductible only if you use the money to buy, build or substantially improve the home. See HELOC vs. Home Equity Loan vs. Cash-Out Refinance.
- Home office: generally only for self-employed people who use a space regularly and exclusively for business.
- Closing costs: most aren’t deductible, but many are added to your cost basis, which lowers your taxable gain when you sell.
What you can’t deduct
- Mortgage principal.
- Homeowners insurance on your own home.
- HOA or condo fees on your own home.
- Repairs and routine maintenance.
- Utilities.
Keep good records
Save your Closing Disclosure, your yearly Form 1098 from the lender, property tax bills and every improvement receipt. These records help at tax time each year and again when you sell, because many purchase costs and improvements raise your cost basis and lower your taxable gain.
Common mistakes
- Assuming everyone should itemize. Many owners with smaller loans still come out ahead with the standard deduction.
- Forgetting the income phase-downs. The higher SALT cap shrinks for incomes over $500,000, and the mortgage insurance deduction fades out above $100,000 of AGI.
- Mixing up the cash-out rules. Using home equity to pay off a car or credit cards doesn’t create deductible mortgage interest.
Daniel’s tip: When you compare homes, run the payment both before and after taxes with your CPA. For some buyers, the tax savings on a larger loan narrow the real monthly difference between two homes more than they expect.
For the full monthly picture, read The True Cost of Owning a Home and, when you sell, Capital Gains Tax When You Sell Your Home.
Want a local lender and CPA introduction before you buy?
Frequently asked questions
Is property tax fully deductible?
Only within the SALT cap, which combines property tax with state income or sales tax.
Can I deduct interest on a second home?
Yes, interest on a main home and one second home can count, as long as the total purchase debt stays within $750,000.
Does refinancing reset the $750,000 limit?
Generally, refinanced debt keeps its original treatment up to the old balance. Extra cash-out is treated by how you use it.
Filed under Buying a Home, Money & Mortgages
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