Tax Benefits of Home Ownership in 2026: OBBB Update

Some of the main benefits of home ownership

• Mortgage interest deductions.
• Property tax deductions, subject to the applicable state and local tax (SALT) limit.
• A home-sale gain exclusion under Section 121 of up to $500,000 for qualifying married couples filing jointly, or $250,000 for other eligible taxpayers.

Energy efficiency credits are another important update, although the Section 25C and 25D credits ended for new qualifying improvements or expenditures after 2025.

Note: Mortgage interest and personal property tax deductions generally require itemizing rather than taking the standard deduction.

Home mortgage interest deduction

Under IRC Section 163(h)(3), the OBBB made the $750,000 acquisition-debt limit permanent, or $375,000 if married filing separately, for debt incurred after December 15, 2017. Qualifying debt incurred on or before that date generally retains the higher $1 million limit, or $500,000 if married filing separately.

Reminder: Qualifying mortgage interest can generally be deducted on a main home and one second home, but the applicable debt limit covers both homes combined.

Beginning in 2026, qualifying mortgage insurance premiums are once again deductible as an itemized deduction, subject to income and other eligibility limits.

Home equity lines of credit (HELOCs)

Before the TCJA restrictions took effect in 2018, interest on up to $100,000 of qualifying home equity debt could generally be deducted even when the funds were used for personal purchases.

The OBBB made the restriction on that deduction permanent. To qualify as home acquisition debt, the funds must be used to buy, build, or substantially improve the home securing the loan, subject to the combined debt limits. Ordinary repairs alone generally do not qualify.

Property tax deduction

For 2026, the SALT deduction limit is generally $40,400, or $20,200 if married filing separately.

The limit begins to decrease when modified adjusted gross income exceeds $505,000, or $252,500 if married filing separately. The combined limit includes deductible property taxes and state and local income taxes, or sales taxes if elected instead of income taxes.

New limitation on itemized deductions

Beginning in 2026, IRC Section 68 reduces itemized deductions by 2/37 of the lesser of:

1. The otherwise allowable itemized deductions; or
2. The amount by which taxable income, calculated before this limitation and increased by those deductions, exceeds the threshold where the 37% tax bracket begins.

This generally limits the federal tax benefit of affected deductions to 35%.

Home sales and energy credit updates

The Section 121 home-sale exclusion remains available to qualifying homeowners. The OBBB did not increase the $250,000/$500,000 exclusion amounts or change the basic two-out-of-five-year ownership and use tests.

The Section 25C energy efficient home improvement credit and Section 25D residential clean energy credit ended for new qualifying improvements or expenditures after December 31, 2025, under their respective timing rules. Eligible unused residential clean energy credits may still carry forward.

A planning consideration

Under Treasury Regulation Section 1.163-10T(o)(5), you can elect to treat qualifying debt as not secured by the home for purposes of the mortgage-interest rules. Any deduction then depends on how the proceeds were used and the applicable business, rental, or investment interest rules. The election generally continues in later years unless revoked with IRS consent.

For more information on planning around home ownership, please schedule a call with our office for a consult.