I Bought a Home Last Year. Do I Get a Tax Deduction?

As a new homeowner, you may be eligible for tax deductions that can help reduce your tax bill, but these benefits are not automatic. To claim them, you must itemizing your deductions rather than taking the standard deduction. 

This is an important distinction because the OBBBA recently made the standard deduction permanently higher. As a result, you now need a significant amount of itemized deductions to make skipping the standard deduction worth it. .

If you do itemize, there are two major ways the OBBBA can affect what you can write off regarding your home purchase. First, you can only deduct mortgage interest on your loan up to the limit of $750,000 ($375,000 if married filing separately). While this limit was established by the Tax Cuts and Jobs Act (TCJA), the OBBBA made it permanent. 

Second, you can deduct state and local taxes (including property taxes), up to $40,000 in tax year 2025. This provides substantial relief for homeowners in high-tax states. This deduction will increase 1% for inflation for tax years 2026-2029, before reverting back to $10,000 in 2030. 

Continue reading to learn more about the tax benefits you might qualify for.

Key takeaways

• The OBBBA has permanently extended the limit established by the TCJA. For loans taken out  after December 15, 2017, you can deduct interest on mortgage debt up to $750,000 ($375,000 if married filing separately)
• The SALT cap was increased from $10,000 to $40,000 for tax year 2025 under the OBBBA.  The cap is set to increase by an additional 1% annually for tax years 2026-2029. In tax year 2030, the cap is scheduled to revert back to $10,000. 
• The higher standard deduction initially established by the TCJA has been made permanent by the OBBBA.
• You may still be able to claim the home office deduction if you run a business from home (it remains unavailable for W-2 employees).

Mortgage interest & real estate taxes are still tax-deductible

The two biggest tax deductions related to home ownership are mortgage interest and real estate taxes. Both are still deductible under the new tax law, though they are subject to specific caps. Although the OBBBA permanently limited the mortgage interest deduction, the limit for real estate taxes (claimed under the SALT deduction) increased.

Mortgage interest deduction remains at the lowered amount

While the mortgage interest deduction still exists, the limit is lower than it was under older tax laws. Prior to the TCJA, you could deduct interest on up to $1 million of mortgage debt used to purchase, build, or improve your home.

The TCJA reduced this cap to $750,000 ($375,000 if married filing separately) for any loans originated after December 15, 2017. Loans that originated before December 15, 2017, are “grandfathered” and remain subject to the old limit of $1 million Although this reduction was originally scheduled to expire after 2025, the OBBBA has made the $750,000 limit permanent. 

Interest on home equity loans and lines of credit remains tax-deductible when used to purchase, build, or improve the home. If the proceeds are used for other purposes (such as paying off credit card debt), the interest is not deductible.

Deduct more for real estate taxes

Similar to mortgage interest, although real estate taxes are tax-deductible, they are subject to a limit. This limit falls under the SALT deduction, which covers state and local income taxes or sales taxes, as well as property taxes. While you must choose between deducting income or sales taxes, you add your real estate taxes to that choice to calculate your total deduction amount.

Prior to 2018, the real estate tax deduction was virtually unlimited. If you claimed itemized deductions, most tax filers would claim all of their real estate taxes.

However, under the TCJA, the limit changed to:

• $10,000 for married couples and singles filers
• $5,000 for married, but filing separately

The OBBBA significantly altered these limits starting in tax year 2025 by increasing the SALT cap to $40,000. For tax years 2026 through 2029, the cap will increase by another 1% annually. Unless a new tax policy is established, this cap will return to $10,000 after tax year 2029.

The phase-out for this deduction starts at incomes above $500,000. This phase-out income will also increase 1% annually to account for inflation.

The standard deduction Is higher

Under the TCJA, the standard deduction was increased significantly. This increase was made permanent by the OBBBA. With a much higher standard deduction than pre-TCJA, it may not make sense for a homeowner to claim itemized deductions if the homeowner’s itemized deductions are less than the amount that correlates to their filing status. However, with the increased SALT cap, that may change things over the next few years.

For 2025, the standard deduction is:

• $15,750 for single filers ($14,600 in 2024)
• $15,750 for married, filing separately ($14,600 in 2024)
• $23,625 for heads of households ($21,900 in 2024)
• $31,500 for married, filing jointly ($29,200 in 2024)

TurboTax estimated, and the IRS confirmed that about 90% of taxpayers took the standard deduction in 2022. Prior to the TCJA, about 70% took the standard deduction.

However, this trend may shift again for tax years 2025 through 2029. Although the OBBBA permanently extended the higher standard deduction, it also introduced new incentives to itemize, such as  a large increase to the SALT cap. It remains to be seen whether these changes will encourage more homeowners to itemize over the next few years. 

You may also get more itemized deductions and push yourself over the standard deduction by donating to charity or making sure you claim your medical expenses over 7.5% of your adjusted gross income.

You can still write off your home office

If you own a business and have dedicated your house to an office space, you may be able to write off related expenses on your Schedule C. It is important to note that this is only available to self-employed individuals and business owners. W-2 employees are not eligible, even if they work from home. 

In order to qualify for the home office deduction, the area you’re trying to claim must meet one of the following criteria:

• Exclusive and regular use: It’s used for your business  exclusively and on a regular basis.
• Exclusive and regular meeting space: It’s regularly used as the principal location of your business.
• Separate, unattached structure: It’s an unattached structure, such as a detached garage, that you use exclusively and regularly for your business activities.
• Exclusive and regular use for storage, rental, or daycare: It’s a storage space that you use for inventory or product samples for your business. Or, it’s a fixed location that’s used as a daycare facility.

If you have a space that qualifies, you can deduct the “business percentage” of related expenses, such as:

• Utilities
• Rent
• Insurance
• Maintenance and repairs 
• Depreciation

When you claim the home office deduction, you’ll calculate the write-off in one of these ways:

• Simplified method: $5 per square foot of the area used for business. There’s a maximum of 300 square feet.
• Actual expense method: You’ll calculate the total expenses and then divide them by the percentage of your home dedicated to business.

Are there any other tax policy changes that impact homeowners?

If you typically enjoy the tax savings from your environmentally friendly home upgrades, you’ll want to note that 2025 will be the last opportunity to claim them. So, if you were planning on installing solar panels, energy-efficient windows or doors, or any other qualifying property, you’ll need to have it installed and in service by December 31, 2025.

To get a full picture of how the OBBBA will impact your tax return, use our free tax reform calculator.

No need to worry about knowing these tax rules. TurboTax will ask you simple questions about you and give you the tax deductions and credits you’re eligible for based on your entries. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average of 15 years of experience to get your tax questions answered.  TurboTax Live CPAs and Enrolled Agents can also review, sign, and file your tax return, and are available in English and Spanish year-round.