How buying a home can cut your tax bill

Buying a place is a money move, not just a Pinterest board. The reason people bring up taxes every time a friend posts closing-day keys on Instagram is that homeownership comes with a handful of built-in breaks. Some are classic deductions you’ve heard about forever. Some are policy tweaks that changed this year. And some only kick in if you use your home a certain way. If you’re deciding whether to buy, or you just bought and want to get your paperwork right, here is what the real tax advantages of buying a home look like in 2025, in normal human language.

Start with the most famous one. The mortgage interest deduction is still a thing, and it still works only if you itemize your deductions instead of taking the standard deduction. In 2025 the IRS says you can deduct interest on up to $750,000 of acquisition debt for homes bought after December 15, 2017, with the older $1 million cap grandfathered for earlier loans. Interest on home-equity borrowing only counts if the money went back into the house to buy, build, or substantially improve it, not to pay off cards or take a vacation. That’s straight from the IRS guidance and Publication 936.

Whether this deduction helps you depends on another moving part: the standard deduction. Under the new 2025 law, the nearly doubled standard deduction framework remains and was bumped again this year, which means fewer people itemize. Most homeowners only benefit from deducting mortgage interest if their total itemized deductions beat that larger standard number. Financial press coverage has noted that the law kept the broader structure and amounts high enough that many filers will still find itemizing a stretch unless their mortgage is larger or they have other big deductions. In other words, run the numbers before assuming the interest write-off is a slam dunk.

Next up is property tax, which lives inside the SALT bucket. This one changed in 2025. For years, the state and local tax deduction was capped at $10,000, which crushed the usefulness of property-tax deductions for a lot of homeowners. The new federal package raised the SALT cap to $40,000 starting in 2025 for many households, with a phase-down for higher incomes. Analysts and tax reporters have both flagged that shift as meaningful, especially in high-tax states, but with caveats about income thresholds and the combined cap applying to state income or sales tax plus property tax. Translation: if you itemize, more of your property tax may finally be deductible again, but it is still not unlimited and it won’t help at all if you stick with the standard deduction.

Points deserve a quick spotlight because buyers often miss them. If you paid discount points at closing to lower your rate, those points can be deductible as mortgage interest. In many first-mortgage purchases on a primary home, you can deduct them in the year you paid them, as long as you meet the IRS tests. If not, you spread them over the life of the loan. The IRS lays out the rules, examples, and the year-paid test in Topic 504 and Publication 936. This is one of those little line items that can move your refund more than you expect, especially in the year you buy.

There’s also a 2025 comeback worth noting if you put less than 20% down. The new bill restored the deduction for mortgage insurance premiums, a break that had expired and revived more times than your favorite meme. Industry groups and tax attorneys reported that the law brings it back for 2025 returns, subject to the usual limitations and IRS guidance. If you’re paying PMI or MIP, keep an eye on the final IRS instructions and income thresholds before you file, but know this write-off is back on the table.

Energy incentives are not just for people installing solar on a farmhouse. Two credits matter for regular homeowners. The Energy Efficient Home Improvement Credit lets you claim up to 30% of qualified improvements each year, with an annual cap that can reach $3,200 if you stack upgrades like efficient HVAC and a home energy audit. The Residential Clean Energy Credit covers 30% of eligible clean-energy systems like solar through 2032. Credits beat deductions because they reduce your tax bill dollar-for-dollar, but you still need receipts and the right equipment codes. The IRS keeps plain-English pages on both credits, and they apply after you own the home, not at purchase.

If you’re self-employed or run a genuine side business from home, the home office deduction can be a quiet MVP. It is not just for people with a separate building. If part of your home is used regularly and exclusively for business, you can deduct using either actual-expense allocation or the simplified method at five dollars per square foot, up to 300 square feet. Claiming it correctly means respecting the “exclusive use” rule and picking one method per year. The simplified route is exactly that and avoids depreciation recapture down the road. The IRS has current pages and FAQs that spell out both methods and the $5 rate.

House hackers, you are not left out. If you rent out a room or a portion of your home, a slice of your housing costs moves from a personal deduction to a business expense on Schedule E. That includes a reasonable share of mortgage interest, property tax, utilities, repairs, and yes, depreciation on the rented part. The rules are detailed, especially when personal and rental use mix, but the IRS’s residential rental guide and tax topics on rental income explain how to split costs and when short-term rentals drift into Schedule C territory. Done right, this setup can transform what would have been itemized deductions capped by SALT into above-the-line offsets against rental income. Done wrong, it can blow up your return. Keep records and read the rules before you list.

The big win often shows up when you sell. The home sale gain exclusion lets many sellers avoid tax on a healthy chunk of profit, as long as the place was your main home and you’ve met the use and ownership tests. The baseline is still up to $250,000 of gain excluded for single filers and up to $500,000 for married couples filing jointly. The IRS updated its page and Publication 523 this year with fresh examples, and the rule remains one of the most powerful wealth-building tools available to everyday homeowners. Keep good records of capital improvements because they increase your cost basis, which reduces your gain before the exclusion even kicks in.

That “basis” word matters in more ways than one. While you own the home, major improvements raise your basis and reduce future taxable gain. If a home passes to heirs, current rules still provide a step-up in basis to fair market value at death, which can wipe out decades of unrealized appreciation for capital gains purposes. IRS publications outline the basis math and reporting requirements for estates, and recent coverage has focused on estate thresholds and portability, but the core step-up principle remains intact in 2025. If multigenerational planning is part of your picture, know that this rule is still in play and interacts with the new estate-tax exemption levels that tax writers have been clarifying this summer.

Zooming out, here is how these pieces fit together in the real world. If you take the standard deduction, your mortgage interest and property taxes do not help you unless the SALT and other itemized items push you over the line. The 2025 SALT cap expansion to $40,000 makes that math more interesting for many households in higher-tax states, but nothing changes if you do not itemize. If you do itemize, the interest cap of $750,000 still applies, and home-equity interest remains deductible only when it funds improvements. Energy upgrades and clean energy systems are credits, so they can help regardless of itemizing, as can the home office deduction if you qualify. If you are renting part of your home, your tax life gets more complex, but the deductions become more powerful because they move off Schedule A and into a business context where they directly offset rental income. And when it is time to sell, the gain exclusion is a separate rule entirely and can deliver real after-tax dollars, especially if you have kept every receipt for improvements.

A few traps are worth calling out. Do not assume the home office deduction applies if you are an employee working from home for an employer. That was eliminated a few years back and has not returned; the home office write-off is for self-employed and certain partners only, and it hinges on exclusive and regular business use. Do not deduct points that were actually just lender fees that do not meet the IRS tests for year-one deduction, and do not claim deduction on cash-out refinance interest used for non-home expenses. For SALT, remember that the $40,000 cap is a combined ceiling for state income or sales taxes plus property taxes, and higher earners face phase-downs, so the headline number is not the whole story. Finally, energy credits require qualified equipment and proper paperwork; keep manufacturer certificates and Form 5695 ready to go.

If you are reading this thinking it sounds like work, that is fair. But once you know the levers, you can plan your year instead of just filing it. If you are on the fence about buying, model two scenarios: one where you itemize and one where you do not. Layer in the 2025 SALT change, estimate your first-year points, and consider whether you will make any qualifying energy improvements. If you are self-employed, map a legitimate home office into your floor plan and decide now whether you will use the simplified $5-per-square-foot method or track actuals. If you might rent a room, read the rental sections and decide whether the extra cash flow is worth the reporting. And if you think you will sell within a few years, start a permanent folder for improvements so the basis math is easy later.

The bottom line is simple. The tax advantages of buying a home are real, but they are not automatic. In 2025, the mortgage interest rules are steady, the SALT cap has reopened some space for deducting property taxes, the energy credits are generous, the home office deduction is still there for independent workers, and the home-sale exclusion remains the heavyweight champion of homeowner tax perks. Use what fits your situation, ignore what does not, and keep everything documented. That way your house can work a little on your taxes while you make it a home.