How Your Mortgage Can Help Reduce Your Tax Bill

Key Mortgage Tax Deductions

Buying a home is a major financial step, but it can also offer tax advantages that help lower your overall tax bill. Some of the most common deductible expenses include mortgage interest, property taxes, and points paid at closing. However, eligibility depends on your specific mortgage, how much you owe, and whether you choose to itemize deductions instead of taking the standard deduction.

Mortgage interest is often the largest deductible amount for homeowners. If your mortgage was originated after December 15, 2017, you can typically deduct interest on up to $750,000 of mortgage debt ($375,000 if filing separately). This interest must be on your primary residence or a qualified second home. Remember, the deduction reduces your taxable income, so the actual tax savings depend on your tax bracket and filing status. You'll receive Form 1098 from your lender showing mortgage interest paid, which is essential for tax filing.

Property taxes are another significant expense you might deduct, but these fall under the state and local tax (SALT) deduction, which has limits. For 2026, you can deduct up to $40,400 ($20,200 if married filing separately) combined for all qualifying state and local taxes, including income and sales taxes. Make sure to track payments made during the tax year, especially if your lender pays taxes from an escrow account.

Using Home Equity Loans and Points

Interest on home equity loans or lines of credit (HELOCs) might qualify for deductions if the money is used to buy, build, or substantially improve your home. For instance, financing a kitchen remodel could make your interest deductible, but using those funds for unrelated expenses generally won’t.

Mortgage points paid at closing may also be deductible. Points paid to buy your primary home may be deducted in full in the year they’re paid, while points from refinancing usually must be spread over the loan’s life. Be sure to distinguish genuine points from other fees, and consider how long you plan to keep the mortgage before paying points.

Capital Gains Exclusions and Itemizing Considerations

When you sell your primary residence, you might exclude up to $250,000 ($500,000 for married filing jointly) of capital gains from taxes if you’ve owned and lived in the home for two of the last five years. Keeping records of improvements can increase your home's adjusted basis, reducing taxable gains.

One important detail is that these mortgage-related deductions generally require itemizing. For many taxpayers, the standard deduction might be higher, meaning itemizing wouldn't save money despite mortgage interest and property tax payments. For the 2026 tax year, the standard deduction is $16,100 for singles and $32,200 for married couples filing jointly. Always compare both options before filing.

Good recordkeeping is crucial. Keep your mortgage statements, property tax payments, loan documents, and receipts for home improvements organized to support your deductions and capital gains calculations.

While mortgage-related deductions can reduce your tax bill, they’re just one factor in homeownership costs. Tax benefits vary based on your income, mortgage details, and personal circumstances. Consulting a tax professional ensures you maximize your savings and make informed financial decisions related to your home.