10 Can't-Miss Tax Breaks for Homeowners and Homebuyers

1. 401(k) or IRA loans to buy a home

To become a homeowner, you'll need money for a down payment. If you have an IRA or a 401(k) account, you might be able to tap into those funds to help you buy a home.

Traditional IRA. Traditional IRA holders can withdraw up to $10,000 penalty-free for a first home purchase, construction, or rebuilding, even before age 59½. Married couples can each withdraw $10,000 from separate IRAs without penalty.

Roth IRA. You can withdraw Roth IRA contributions anytime, without incurring penalties or taxes under some circumstances. Earnings withdrawals are typically taxed and penalized unless used for a first-home down payment (up to $10,000) after the account has aged five years.

401(k). If you want to pull money out of a 401(k) account to put toward a down payment, you'll have to borrow from the plan. You can typically take out a tax- and penalty-free loan from your 401(k) plan for up to half of your balance (but not more than $50,000). However, there are some things you should know before you do.

• A 401(k) loan typically requires repayment within five years, but loans for a primary home might have extended terms. Interest applies.
• If you leave or lose your job, your plan provider will likely default the loan within 60 to 90 days. To avoid taxes and a 10% penalty on that unpaid balance, you must deposit an equivalent cash amount into an IRA or new 401(k) by the due date of your federal tax return, including extensions (typically, October 15 of the following year).

2. Mortgage interest deduction

Homeowners can deduct mortgage interest on up to $750,000 of debt ($375,000 if married, filing separately) when itemizing. This applies to funds used to purchase, construct or substantially improve a primary or secondary home.

The 2025 Trump tax bill made the mortgage interest deduction cap permanent. This deduction limit was initially set to expire after 2025 under the Tax Cuts and Jobs Act (TCJA) and revert to the previous $1 million cap.

Allowable mortgage interest tax deduction amounts differ for married taxpayers filing separately and for homes purchased before December 16, 2017.

For now, if you’d like to deduct interest, your lender will send you a Form 1098 in January listing the mortgage interest you paid during the previous year. That's the amount you deduct on Schedule A (Form 1040).

3. Mortgage interest credit

There's also a mortgage interest tax credit available to homeowners with lower incomes who were issued a qualified mortgage credit certificate (MCC) from a state or local government to subsidize the purchase of a primary home.

• The credit amount ranges from 10% to 50% of mortgage interest paid during the year. (The exact percentage is listed on the MCC issued to you.)
• The credit is limited to $2,000 if the credit rate is higher than 20%.
• However, if your allowable credit is reduced because of the limit, you can carry forward the unused portion of the credit to the next three years or until used, whichever comes first.

To claim the credit, complete Form 8396 and attach it to your 1040. You also need to report the credit amount on Schedule 3 (Form 1040).

Claiming the mortgage interest credit reduces your Schedule A mortgage interest deduction by the credit amount. Refinancing requires a new MCC, and the credit amount on the new loan might differ. Finally, if you sell your home within nine years, you might be required to pay some or all the MCC benefit.

4. Home office deduction for the self-employed

If you work for yourself and use a dedicated space in your home exclusively and regularly for business, you might be eligible for the home office tax deduction.

A portion of your rent or mortgage interest, utilities, home insurance, and repairs might qualify, but only under the following:

• The simplified method, which gives you a $5 tax deduction per square foot, up to $1,500 in a tax year, OR
• The actual expense method, which tallies your actual expenses throughout the year and prorates them based on the amount of square footage that's exclusively devoted to work in your home.

As always, W-2 remote workers can't claim a tax break for home office expenses. For more information, check out Kiplinger's report, Home Office Tax Deduction: Work From Home Write-Offs in 2026.

5. Points or prepaid mortgage interest paid at closing

Did you know there's a tax deduction available for homebuyers relating to points?

Discount points are fees paid at closing to lower your loan's interest rate. They're generally fully deductible in the year they're paid if you're purchasing your main home.

However, if you're refinancing, you can't deduct them all at once; you must amortize them by deducting an equal portion each year over the life of the loan.

• For example, if you pay $3,000 in points on a 30-year refinance, you deduct $100 per year.
• The exception is if you use a portion of the refinanced loan proceeds to pay for substantive home improvements; the portion of points tied to those improvements can be deducted immediately in the tax year you pay them.

Note: To claim this deduction, you must choose to itemize your taxes on Schedule A rather than take the standard deduction.

6. Home renovations as medical tax deductions

You might qualify for a medical expense deduction if you install special equipment in or make modifications to your home for medical reasons. Here are some common examples of medically necessary upgrades to a home:

• Adding ramps
• Widening doorways
• Installing handrails
• Lowering cabinets
• Moving electrical outlets
• Installing lifts or elevators

Costs for the operation and upkeep of these upgrades are also deductible as medical expenses if the upgrade itself is medically necessary.

You must itemize to claim the deduction, and you can only deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). The deduction is also reduced by any increase in the value of your property.

For example, if you spend $50,000 to install an elevator, and that increases your home's value by $40,000, you can only deduct $10,000 ($50,000 minus $40,000).

For a detailed list of home improvements you can deduct as medical expenses, see IRS Publication 502.

If you’re curious about what else you can deduct as medical expenses for long-term care, read: Deduct Expenses for Long-Term Care on Your Tax Return.

7. Property tax deduction

You might be able to deduct property taxes paid in 2026 on your federal income tax return. However, you must itemize to deduct real property taxes. These other types of taxes may be deductible, too.

• State income taxes
• Local income taxes
• Sales taxes

There's also a new (but temporary) $40,400 SALT deduction cap.

Want to learn how to reduce your tax bill? See: How to Reduce Your Property Tax.

8. Private mortgage insurance (PMI) premiums

If you purchased a home with less than a 20% down payment, you likely pay monthly private mortgage insurance (PMI) premiums (or government mortgage insurance premiums such as FHA MIP or USDA guarantee fees). These protect your lender.

But under the 2025 Trump tax bill, mortgage insurance premiums were made permanently deductible on Schedule A as qualified mortgage interest, beginning in the 2026 tax year (returns typically filed in 2027).

• The full deduction is available to eligible taxpayers who itemize and have an AGI of $100,000 or less ($50,000 if married filing separately).
• The deductible amount decreases by 10% for every $1,000 your AGI exceeds $100,000, and fully phases out once your AGI reaches $109,000 ($54,500 if married filing separately).

9. Capital gain exclusion when selling your home

You probably won't have to pay taxes on all or part of the gain from the sale. Your home is considered a capital asset. Normally, you have to pay capital gains tax when you sell a capital asset for a profit.

However, there is a capital gains tax exclusion for homeowners that can help. If you're married and file a joint return, you don't have to pay tax on up to $500,000 ($250,000 for single filers) of the gain from the sale of your home if all the following apply:

• You owned the home for at least two of the past five years
• You lived in the home for at least two of the past five years
• You haven't used this exclusion to shelter gain from a home sale in the last two years

For example, if you bought your home five years ago for $600,000 and sold it for $700,000, you won't pay any tax on the $100,000 gain if all the exclusion requirements are satisfied. (Unfortunately, if you sold your home for a loss, you can't deduct the loss.) Any profit above the $500,000 or $250,000 exclusion amount is reported as capital gains on Schedule D.

If you don't meet all the requirements, you still might be able to exclude a portion of your home-sale profits if you had to sell your home because of a change in your workplace location, a health issue, a divorce or some other unforeseen situation.

The amount of your exclusion depends on how close you come to satisfying the ownership, live-in, and previous-use-of-exclusion requirements.

10. Increased basis when selling your home

If the capital gains tax exclusion doesn't eliminate your tax bill when you sell your home, you can still reduce the tax you owe by adjusting the basis of your home. Your taxable gain is equal to the sales price of your home minus the home's basis. The higher the basis, the lower the tax.

What you originally paid for the home is included in the basis. But you can also tack on various costs associated with the purchase and improvement of your home.

For example, you can include certain settlement fees and closing costs you paid when you bought the home. If you had the house built on land you owned, the basis includes the cost of the land, architect and contractor fees, building permit costs, utility connection charges and related legal fees. The cost of additions and major home improvements can be added to the basis, too (but not basic repair and maintenance costs).

For more information, see: Capital Gains Tax on Real Estate and Home Sales.

Related

• States With No Income Tax Ranked By Homeowner Costs
• 3 Popular Tax Breaks Are Gone for Good
• SALT Deduction Changes: 3 Things to Know Now
• 10 Most-Overlooked Tax Deductions and Credits