The Big Picture: Home and Taxes

Your home is likely your largest monthly expense - and for many people, it's also a source of legitimate tax benefits. But the rules vary significantly depending on whether you own or rent, and a lot of commonly held beliefs about home deductions turn out to be myths. Before claiming anything, it helps to understand what the IRS actually allows.

The foundation you need first: deductions reduce your taxable income, while credits reduce your tax bill directly. If you're unclear on how that distinction works, see our guide to deductions vs. credits before continuing.

What Homeowners May Be Able to Deduct

Homeowners who itemize deductions (rather than taking the standard deduction) may qualify for several home-related write-offs. Whether itemizing makes sense depends on whether your total itemized deductions exceed the standard deduction for your filing status - our article on when itemizing makes sense walks through how to decide.

Mortgage Interest Deduction

If you have a mortgage on your primary home (or a second home), you may deduct interest paid on loan balances up to $750,000 (for loans taken out after December 15, 2017). This is reported to you annually on Form 1098 from your lender. Note: only the interest portion is deductible - not your principal repayment.

State and Local Taxes (SALT)

Homeowners paying property taxes may deduct those amounts under the SALT deduction - but only up to a combined cap of $10,000 per year (or $5,000 if married filing separately). This cap includes state income taxes or sales taxes, plus property taxes.

Points Paid at Closing

Mortgage points (prepaid interest paid to lower your interest rate) are generally deductible in the year you pay them, provided the loan is for your primary home and meets IRS requirements. Points paid on a refinance are usually deducted over the life of the loan rather than all at once.

Home Office Deduction

If you're self-employed and use part of your home exclusively and regularly for business, you may qualify for the home office deduction. Employees who work from home are generally not eligible. Learn more about this in our piece on self-employment taxes.

Energy-Efficiency Credits

Certain home improvements - such as installing solar panels, energy-efficient windows, or heat pumps - may qualify for federal tax credits (not just deductions). The Residential Clean Energy Credit and Energy Efficient Home Improvement Credit are two IRS-defined programs worth investigating if you've made qualifying upgrades.

What Renters Should Know

There is no federal tax deduction for rent payments. This surprises many people, but the IRS does not allow renters to deduct monthly rent on their federal return. A few states offer a renter's credit or deduction on the state return, so it's worth checking your state's rules separately.

That said, renters are not without options:

  • Home office deduction: Self-employed renters can still claim a home office deduction if a dedicated space in the rented home is used exclusively and regularly for business.
  • Energy credits: Some energy-efficiency credits apply to renters who purchase qualifying equipment (such as a portable heat pump), though building-level improvements typically belong to the landlord.
  • Casualty loss deductions: In federally declared disaster areas, renters who suffer property losses may qualify for a casualty loss deduction under specific IRS rules.

If you're new to filing and want a broader overview of what's available to you, our guide for first-time taxpayers is a useful starting point.

Check Your State's Rules for Renters

While there is no federal deduction for rent, some states - including California, Massachusetts, and Minnesota - offer a renter's credit or deduction on the state income tax return. Eligibility rules, income limits, and amounts vary by state. Review your state's Department of Revenue guidance or consult a local tax professional to see what may apply to you.

Common Misconceptions to Avoid

Several popular beliefs about home deductions regularly lead people to overclaim - or underclaim - on their returns. Our article on tax myths around deductions covers many of these in depth. A few to flag here:

  • "All home expenses are deductible." They are not. Utilities, general maintenance, landscaping, and home insurance are not deductible for personal residences.
  • "I can deduct my full property tax bill." Only up to the $10,000 SALT cap - and only if you itemize.
  • "My home office just needs to be where I sometimes work." The IRS requires exclusive and regular use for business. A kitchen table or shared guest room generally does not qualify.

This article provides general educational information about U.S. federal tax concepts and is not personalized tax, legal, or financial advice. Tax rules change, and individual circumstances vary. Consult a qualified tax professional or CPA regarding your specific situation before making decisions about your return.