Overview

Homeownership brings tax offsets that can meaningfully lower your tax bill — but rules matter. Deductions reduce taxable income (e.g., mortgage interest, some property taxes), while credits reduce the tax you owe directly (e.g., the Residential Clean Energy Credit). Which ones apply depends on factors such as whether you itemize, the date and size of your mortgage, and whether improvements meet federal program requirements (IRS). For official guidance, see IRS Publication 936 on mortgage interest and the IRS pages for residential energy credits.

Key deductions and credits (what to know)

  • Mortgage interest deduction: Interest on primary and second-home mortgages is generally deductible up to statutory limits. Mortgages originated on or after Dec. 15, 2017 are subject to lower acquisition-debt limits than older loans; check IRS Publication 936 for details and how to report interest on Form 1098 (IRS Publication 936).

  • Property taxes (SALT): You can deduct certain state and local taxes, including property tax, but the Tax Cuts and Jobs Act capped the combined deduction for state and local income, sales, and property taxes at $10,000 for most filers. Keep in mind that the cap affects many homeowners, especially in high-tax states (IRS Topic No. 503).

  • Residential Clean Energy Credit (solar, qualified equipment): A credit for qualifying residential clean energy systems (solar panels, qualifying heat pumps, some battery storage and other equipment). The credit percentage and eligibility rules changed under the Inflation Reduction Act; through 2032 the credit can be as high as 30% for qualifying systems placed in service (see the IRS “Residential Clean Energy Credit” page).

  • Energy Efficient Home Improvement Credit: Separate from the clean energy credit, this credit helps pay for qualified efficiency upgrades and home electrification improvements subject to annual limits and product requirements. See the IRS “Energy Efficient Home Improvement Credit” page for the current rules and eligible items.

  • Home office deduction: Homeowners who run a business or are self-employed and use part of their home regularly and exclusively for business may deduct a share of mortgage interest, utilities, insurance, and repairs. Employee-only home-office deductions are generally disallowed under current law; consult IRS Publication 587 on the business use of your home.

  • Points and other mortgage-related costs: Points paid at purchase may be deductible in the year of purchase if they meet IRS rules (usually if paid for the purchase of your primary residence and shown on Form 1098). Other closing costs are usually not deductible.

  • Capital improvements vs. repairs: Capital improvements that add to the home’s basis (e.g., an addition, new roof) reduce taxable gain when you sell; routine repairs are deductible only when they qualify under business or rental rules.

Real-world example

If you paid $20,000 in deductible mortgage interest this year and are in the 22% marginal tax bracket, an itemized deduction reduces your federal tax by roughly $4,400 (20,000 × 22%). By contrast, qualifying for a $6,000 energy credit for an installed heat pump would reduce your tax bill directly by $6,000.

Who benefits and common eligibility pitfalls

  • Likely beneficiaries: Homeowners with large mortgage interest payments, significant qualifying energy upgrades, or business owners who use part of their house for work. Because the standard deduction increased after tax reform, many homeowners with modest interest and tax payments now find the standard deduction is larger than itemized deductions.

  • Common mistakes: (1) Assuming all energy upgrades are eligible — only qualifying equipment and installation rules apply; (2) misclassifying repairs vs. capital improvements; (3) forgetting the SALT $10,000 cap; and (4) failing to retain invoices, contracts, and manufacturer certifications required by the IRS.

Professional tips (practical steps I use with clients)

  • Run a quick itemize vs. standard deduction calculation each year using actual mortgage interest and property tax totals before deciding how to file. Small changes (a large repair, a major energy project, or an extra year of mortgage interest) can flip the result.

  • For energy credits, keep manufacturer statements, contractor invoices, and proof of installation dates. Some credits require equipment to meet federal efficiency standards or to be installed by a certified contractor (see IRS energy credit pages).

  • Track capital improvements separately from routine maintenance to correctly adjust your cost basis when you sell.

  • When in doubt, consult a CPA or tax advisor. I regularly review client tax scenarios to identify missed credits and ensure compliance with IRS substantiation rules.

Useful resources and internal links

Further reading on FinHelp

Frequently asked (brief answers)

  • Can I claim both a credit and a deduction? Yes — credits and deductions serve different functions and you can claim both if you meet each program’s rules.

  • Do I need to itemize to get energy credits? No. Many energy credits are available whether you itemize or not; they directly reduce your tax liability.

Professional disclaimer

This article is educational and not personalized tax advice. Tax law changes, and eligibility depends on facts unique to you. Consult a qualified tax professional (CPA or enrolled agent) before relying on these points for filing.

Authoritative sources

  • IRS Publication 936; IRS pages on Residential Clean Energy Credit and Energy Efficient Home Improvement Credit.