By Harry Prabandham · Updated September 28, 2026
Tax Planning
Primary Residence Tax Benefits: Mortgage Interest, SALT, and the Home Sale Exclusion
Itemizers can deduct mortgage interest on up to $750,000 of debt and property taxes within the SALT cap; up to $250K/$500K of sale gain can be excluded.
Primary Residence Tax Benefits: Mortgage Interest, SALT, and the Home Sale Exclusion
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What tax benefits come with owning a primary residence?
- Itemizers can deduct mortgage interest on up to $750,000 of acquisition debt and property taxes within the SALT cap.
- When the home is sold, up to $250,000 of gain, or $500,000 for joint filers, can be excluded if ownership and use tests are met.
- These deductions help only if total itemized deductions exceed the standard deduction of $16,100 single or $32,200 joint in 2026.
- Home improvements add to basis, which reduces gain on a later sale.
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Full Guide
What tax benefits come with owning a primary residence?
- Itemizers can deduct mortgage interest on up to $750,000 of acquisition debt and property taxes within the SALT cap.
- When the home is sold, up to $250,000 of gain, or $500,000 for joint filers, can be excluded if ownership and use tests are met.
- These deductions help only if total itemized deductions exceed the standard deduction of $16,100 single or $32,200 joint in 2026.
- Home improvements add to basis, which reduces gain on a later sale.
How does the mortgage interest deduction work?
- Interest is deductible on up to $750,000 of debt used to buy, build, or substantially improve a main or second home.
- Debt taken on before December 16, 2017 keeps the older $1 million limit.
- Home equity interest is deductible only if the loan proceeds are used to buy, build, or improve the home securing it.
- The 2025 tax law made these limits permanent and treats qualified mortgage insurance premiums as deductible interest starting in 2026.
How are property taxes treated?
- Property taxes are part of the state and local tax (SALT) deduction for itemizers.
- The 2026 SALT cap is $40,400, covering property taxes plus state income or sales taxes combined.
- The cap phases down by 30% of modified AGI above $505,000, but not below $10,000.
- Transfer taxes paid on purchase are added to basis rather than deducted.
How does the home sale exclusion work?
- Under Section 121, a seller who owned and used the home as a main residence for two of the five years before sale can exclude up to $250,000 of gain.
- Married joint filers can exclude up to $500,000 if either spouse meets the ownership test and both meet the use test.
- The exclusion is generally available once every two years.
- Gain equal to depreciation claimed after May 6, 1997, such as for a home office or rental use, is not excludable.
What special cases affect the exclusion?
- A surviving spouse who has not remarried can use the $500,000 limit for a sale within two years of the spouse's death.
- A reduced exclusion may apply after a move for a job change, health reasons, or unforeseen circumstances before two years.
- Military, Foreign Service, and intelligence personnel on qualified extended duty can suspend the five-year test period for up to ten years.
- Periods of nonqualified use after 2008, such as renting before moving in, can reduce the excludable gain.
What other home-related rules apply?
- Self-employed people who use part of a home regularly and exclusively for business may deduct home office costs, including a simplified $5-per-square-foot method up to 300 square feet.
- Employees cannot deduct a home office under current federal law.
- Points on a purchase mortgage are often deductible in the year paid; points on a refinance are generally spread over the loan term.
- The federal residential energy credits ended for property placed in service or installed after December 31, 2025.
Key takeaways
- Mortgage interest on up to $750,000 of debt and property taxes within the $40,400 SALT cap are deductible for itemizers in 2026.
- The Section 121 exclusion shelters up to $250,000 or $500,000 of gain for qualifying sellers.
- Depreciation and nonqualified use can reduce the exclusion.
- Confirm deductions and sale reporting with a CPA, since Rubric Advisors does not prepare tax returns.
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