Owning a home comes with tax considerations that can influence affordability today and potential gains for both buyers and sellers.
Washington — Homebuying in 2026 thus far has been showing signs of a buyer-friendly market despite the recent uptick in mortgage rates.
Real Estate News acknowledged its Home Price Index was down 0.2% in February compared to the year before, marking the first year-over-year decline since 2012. But what about those tax breaks for potential purchasers? Below is a list to be aware of:
Mortgage interest deduction
To obtain an interest deduction for their mortgage, a person is required to itemize their tax return.
The mortgage interest deduction is a tax incentive for homeowners and lets you reduce your taxable income for the amount you've paid in mortgage interest during the year.
"Deductible mortgage interest is interest you pay on a loan, secured by a main home or second home, that was used to buy, build, or substantially improve the home," according to TurboTax.
Starting eight years ago, the maximum amount of debt is limited to $750,000. Mortgages that existed as of December 15, 2017, will continue to receive the same tax treatment as under the old rules.
Home equity loan interest deduction
Next to the mortgage interest deduction, homebuyers can also look into the option of a home equity loan interest deduction.
"The home equity loan interest deduction allows you to deduct the interest paid on qualifying home equity loans or lines of credit (HELOCs) from your taxable income," says Jackson Hewitt.
The subtraction can provide significant savings. However, to qualify for the deduction, the homebuyer/owner must meet the IRS's requirements.
Home office deduction
Homebuyers can also look for a home office deduction if they use part of their house for business purposes.
Qualifications for this deduction include:
- Home office must be used for your self-employment
- Gig work
- Contracting
Employees are not eligible to claim the deduction.
Real estate tax deduction
The real estate tax deduction allows homebuyers or homeowners to subtract up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
Capital gain exclusion
Regarding capital tax exclusion, homeowners may exclude from taxable income up to $250,000 ($500,000 for joint filers) of capital gains on the sale of their homes.
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