Think your home’s biggest financial impact is the mortgage payment? You could be leaving thousands on the table. As you prepare your 2025 taxes, it’s crucial to understand the homeowner tax deductions that can significantly reduce what you owe the IRS.

“Your home is more than an asset; it’s a powerful financial tool. Knowing the tax rules is like having the user’s manual.”

Navigating the tax code can feel like trying to solve a Rubik’s cube in the dark. The rules are complex, they change often, and a single missed opportunity can cost you. Many homeowners simply take the standard deduction, unaware of the substantial savings they’re forfeiting. This guide is your flashlight. We’ll break down the key deductions and credits available to you right now, in February 2026, as you file for the 2025 tax year.

Disclaimer: We are real estate experts, not tax professionals. The following is for informational purposes only. Always consult with a certified public accountant (CPA) to understand how these tax implications apply to your specific financial situation.

Decide Between the Standard Deduction and Itemizing

When you file your taxes, you face a choice: take the simple path or the potentially more profitable one.

The “normal” is taking the standard deduction. It’s a fixed-dollar amount that the IRS lets you subtract from your adjusted gross income (AGI) to reduce your tax bill. For the 2025 tax year you’re filing for, the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly [3]. For 2026, those amounts are projected to increase to $16,100 for single filers and $32,200 for joint filers [1]. It’s easy and requires no math.

The “explosion” happens when you realize your specific expenses—your homeowner tax deductions—add up to more than that standard amount. This is where itemizing comes in. It requires more paperwork, but the payoff can be substantial.

Your “new normal” becomes a strategic decision. You add up all your potential itemized deductions. If the total is higher than the standard deduction, you itemize. If not, you take the standard. Simple as that. The tradeoff is your time for documentation versus potential cash savings.

Claim These 6 Key Homeowner Tax Deductions

If you decide to itemize, these are the deductions that can make a massive difference.

1. Mortgage Interest Deduction

This is often the largest deduction for homeowners. You can deduct the interest paid on your mortgage for your primary residence and a second home.

▶ The Limit: You can deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately) for loans taken out after December 15, 2017 [8].
▶ The Caveat: The provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire after 2025, which could change these limits. Some proposals suggest reforms like disallowing the deduction for second homes, which could raise significant government revenue [6].

2. Property Taxes (SALT Deduction)

You can deduct state and local taxes, including property taxes, but this is also capped. This is known as the SALT (State and Local Tax) deduction.

▶ The Limit: For 2025, you can deduct up to $40,400 in combined state and local income, sales, and property taxes [1].
▶ The San Diego Advantage: Thankfully, San Diego property tax rates are some of the more reasonable in California. Understanding the nuances of property tax in California can help you plan your finances more effectively.

3. Home Equity Loan Interest

Did you take out a Home Equity Loan or HELOC? You may be able to deduct the interest, but there’s a critical string attached.

➜ Action Step: You can only deduct the interest if the funds were used to “buy, build, or substantially improve” the home that secures the loan [3]. Using it to consolidate debt or buy a boat? That interest is not deductible.

4. Private Mortgage Insurance (PMI)

For years, this deduction disappeared. Great news: it’s back. If you paid PMI in 2025 because you put down less than 20%, you may be able to deduct those premiums [1]. This is a significant change that many homeowners miss.

5. Mortgage Points

If you bought a home or refinanced in 2025, you may have paid “points” to your lender to lower your interest rate. These points are considered prepaid interest and can often be deducted in the year you paid them. Check your closing documents.

6. Capital Gains from Selling Your Home

This is a huge one. When you sell your primary residence, you can exclude a massive chunk of the profit from your income.

Imagine our client, Sarah. She bought a bungalow in North Park, lived in it for three years while making smart updates, and then sold it with our team’s help. The sale generated a $300,000 profit. Because she owned and lived in the home for at least two of the five years before the sale, she was able to exclude the first $250,000 of her profit from taxes. That’s a direct, powerful benefit of homeownership.

■ Exclusion Amounts: $250,000 for single filers and $500,000 for married couples filing jointly.

Leverage Home Improvements to Reduce Future Taxes

While you can’t deduct the cost of putting in a new kitchen in the year you do it, capital improvements can save you money when you sell. These are expenses that add value to your home, prolong its life, or adapt it for new uses.

Think of it this way: repairs keep your home in its original condition (like fixing a leak), while improvements make it better (like a new roof or a finished basement). These improvements increase your home’s “cost basis.” A higher basis means less taxable profit when you sell.

So, keep every receipt for major projects. I once tried to argue that my top-of-the-line espresso machine was a “substantial kitchen improvement.” Let’s just say my accountant and I had a good laugh, but the IRS wouldn’t have been as amused.

Capitalize on These 3 Homeowner Tax Credits

Credits are even better than deductions. A deduction lowers your taxable income, but a credit reduces your tax bill dollar-for-dollar.

1. Mortgage Interest Tax Credit: This is for low-income, first-time homebuyers who received a Mortgage Credit Certificate (MCC) from a state or local housing agency. It allows you to claim a portion of your mortgage interest as a credit, up to $2,000.

2. Energy Efficient Home Improvement Credit: This popular credit for installing things like new windows, doors, and insulation expired on December 31, 2025 [7]. If you made qualified improvements last year, you must claim it on your 2025 return. It’s a “use it or lose it” situation.

3. Residential Clean Energy Credit: This credit, for installing systems like solar panels, wind turbines, and battery storage, also expired at the end of 2025 [7]. If you completed an installation last year, this is your last chance to claim the 30% credit on your 2025 taxes.

Know What You Can’t Deduct

Just as important as knowing what to claim is knowing what not to. The IRS won’t let you deduct these common homeownership costs:

• The down payment on your home

• Principal mortgage payments

• Homeowners insurance premiums

• Utility bills (gas, water, electric)

• Most closing costs

• HOA fees (though these might be deductible for a rental property)

Understanding the full financial picture is a core part of the services we offer at The Cassity Team. We believe an informed homeowner is an empowered one.

Don’t Navigate the Financials of Homeownership Alone

The tax code is complex, and the stakes are high. Making the right moves can save you thousands, while a misstep can be costly. These deductions and credits are a critical piece of the wealth-building puzzle that is San Diego real estate.

At The Cassity Team, we guide our clients through every stage of the journey, ensuring you have the data and expert advice needed to make strategic financial decisions.

Ready to build a real estate strategy that accounts for the whole picture?

➜ Schedule a strategic consultation with The Cassity Team today to ensure your next move is your best move.