3. Mortgage discount points
Borrowers who pay discount points to reduce the interest rate on a new mortgage may deduct those points in the year of purchase, provided they itemize. One full point generally equals 1 percent of the loan amount and typically lowers the note rate by about 0.25 percentage point. Partial points are also eligible. The upfront outlay makes sense primarily for owners who expect to remain in the home at least five years, the period in which the reduced rate is likely to offset the initial cost.
4. State and local tax deduction
The state and local tax (SALT) deduction covers property levies as well as state income or sales taxes. Under the new law, the cap has risen from $10,000 to $40,000, offering sizeable relief to owners in high-tax jurisdictions. The benefit phases down for taxpayers whose adjusted gross income exceeds $500,000. Itemizing remains mandatory, and the deduction is subject to the overall limit on itemized write-offs.
5. Limited relief for homeowners’ association fees
Routine assessments paid to a homeowners’ association (HOA) are still not deductible on a primary residence. Exceptions exist when the property is classified as a rental, mixed-use or contains a qualified home office. In those cases, a proportional share of HOA dues may be allocated as a business or rental expense. Owners should document the square footage or percentage of the property devoted to income-producing activity.
6. Capital improvements and cost basis
Significant upgrades—such as a roof replacement, room addition or major systems installation—are treated as capital improvements. While they do not generate a deduction in the year incurred, they increase the owner’s cost basis. A higher basis can reduce taxable gain when the house is sold. Cosmetic updates, repairs and maintenance are excluded. Given the complexity of basis adjustments, consulting Publication 523 from the Internal Revenue Service (IRS) is advisable. For direct guidance, the agency’s resource on home sales can be reviewed at irs.gov.
7. Home office deduction
Self-employed individuals, independent contractors and employees who maintain a workspace for the convenience of their employer may claim a home office deduction. Two calculation methods are available. The simplified option allows $5 per square foot of dedicated office area up to 300 square feet, yielding a maximum $1,500 deduction. Alternatively, taxpayers may itemize actual expenses, allocating portions of utilities, insurance, repairs and depreciation based on the office’s share of total living space. A clearly defined, exclusive work area is required.
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8. Exclusion of capital gains on a principal residence
Profit realized on the sale of a primary residence can be excluded from taxable income up to $250,000 for single filers and $500,000 for married couples filing jointly. To qualify, the owner must have occupied the home for at least two of the five years preceding the sale. Any gain above the threshold is subject to capital gains tax, adjusted for the home’s cost basis, including eligible capital improvements.
Impact of higher standard deductions
The OBBB increased standard deductions substantially, reducing the number of taxpayers who will find it advantageous to itemize. For 2026, individuals over age 65 receive an additional $6,000 standard deduction; married couples in that age bracket receive $12,000. The supplement phases out at $75,000 of income for single filers and $150,000 for joint filers. Homeowners should compare the aggregate of eligible itemized deductions—including mortgage interest, SALT, discount points and allowable miscellaneous write-offs—against their standard deduction before choosing a filing strategy.
Energy credits set to expire
The Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit, which currently subsidize items such as solar panel installations, will apply only to property placed in service on or before December 31, 2025. Expenditures incurred in 2026 will no longer qualify for these incentives under existing legislation.
Other deductible losses
Casualty and theft losses attributable to federally declared disasters remain deductible for taxpayers who itemize, subject to percentage and dollar thresholds. Routine wear, personal losses and uninsured events not linked to a declared disaster remain ineligible.
Key considerations for 2026 filings
The principal deductions available to homeowners continue to revolve around mortgage interest, property taxes and the capital gains exclusion. Secondary benefits—such as interest on qualifying home-equity borrowing, discount points, home office expenses and basis increases from capital improvements—can further reduce tax liability but often require detailed substantiation. Because the decision to itemize versus taking the standard deduction can shift from year to year, homeowners may benefit from projecting both scenarios well before the filing deadline.
Crédito da imagem: Associated Press
