Homeowner Tax Deductions 2026: New $40,000 SALT Cap Guide
With the year nearly half over, it’s a good time for homeowners — and future buyers — to review which homeowner tax deductions they actually qualify for. The headline change for 2026: the state-and-local-tax (SALT) deduction cap on real estate taxes has increased to $40,000 ($20,000 for married filing separately), a major shift for high-property-tax states like California. This guide covers what you can deduct, what you can’t, the loan limits on mortgage interest, and the often-missed Mortgage Interest Credit.
At SW Accounting & Consulting Corp, we help Los Angeles area homeowners and buyers capture every legitimate housing tax benefit. Below: the itemize requirement, the new SALT cap, mortgage interest limits, the non-deductible list, and special rules for ministers and military.
You must itemize to deduct home expenses 📋
Homeownership deductions are itemized deductions claimed on Schedule A. If your total itemized deductions don’t exceed your standard deduction, you generally won’t benefit from them — so the first step is always comparing itemized vs. standard.
Most home buyers take out a mortgage, and the lender may bundle other home-related costs into the monthly payment (taxes, insurance, escrow). Only specific components are deductible — the rest, even though you pay them, are not.
What CAN you deduct? ✅
Two core categories of home costs are deductible for an itemizing homeowner: real estate taxes (now under the $40,000 SALT cap) and home mortgage interest (within loan limits).
| Deductible item | Key rule |
|---|---|
| State & local real estate taxes | Subject to a $40,000 limit ($20,000 if married filing separately) under the increased SALT cap |
| Home mortgage interest | Deductible within the allowed acquisition-debt limits (see Pub 936) |
California’s high property values mean many homeowners pay real estate taxes well above the old $10,000 SALT cap. The increased $40,000 limit lets far more of your property tax become deductible. If you stopped itemizing when the cap was $10,000, re-run the comparison — itemizing may now win. (The SALT cap can phase down for higher-income taxpayers under current law — confirm your situation.)
How does the mortgage interest limit work? 🏦
Home mortgage interest is deductible on acquisition debt (used to buy, build, or substantially improve your home) up to statutory limits. The applicable cap depends on when you took out the loan.
| Acquisition debt | Interest deductible on debt up to |
|---|---|
| Loans after Dec 15, 2017 | $750,000 ($375,000 if married filing separately) |
| Loans on or before Dec 15, 2017 (grandfathered) | $1,000,000 ($500,000 if married filing separately) |
Interest on home equity debt is deductible only if the proceeds were used to buy, build, or substantially improve the home that secures the loan. See IRS Publication 936 for the detailed limits and the average-balance calculation.
What can you NOT deduct? ❌
Many recurring homeownership costs are simply not deductible — a frequent source of taxpayer confusion. Per the IRS, the following are NOT deductible:
- Insurance — including fire, comprehensive coverage, and title insurance.
- Principal payments — the portion of your payment that reduces the loan principal.
- Wages for domestic help.
- Depreciation (for a personal residence).
- Utilities — gas, electricity, water.
- Most settlement or closing costs.
- Forfeited deposits, down payments, or earnest money.
- Internet or Wi-Fi service.
- HOA fees, condominium association fees, or common charges.
- Home repairs.
The most common homeowner error is assuming the whole mortgage payment is deductible. It isn’t — only the mortgage INTEREST and the real estate TAX portions are. Principal, insurance, and escrowed HOA/utility amounts are not. Read your year-end Form 1098 from the lender, which separates deductible interest from the rest.
What is the Mortgage Interest Credit? 🎟
The Mortgage Interest Credit helps lower-income homeowners afford homeownership. If your state or local government issued you a qualified Mortgage Credit Certificate (MCC), you can claim a credit each year for part of the home mortgage interest you paid — a dollar-for-dollar tax reduction, distinct from the itemized interest deduction.
Note: the credit and the deduction interact — if you claim the Mortgage Interest Credit, your mortgage interest itemized deduction is reduced by the amount of the credit. A qualified professional can model which combination is best for you.
Special rule: ministers and military 🪖
Ministers and members of the uniformed services who receive a nontaxable housing allowance can STILL deduct their real estate taxes and home mortgage interest — without reducing those deductions based on the allowance.
Frequently asked questions about homeowner deductions
State and local real estate taxes are deductible subject to a $40,000 limit ($20,000 if married filing separately). This is an increase from the prior $10,000 cap. The cap can phase down for higher-income taxpayers under current law — confirm your specific situation.
Yes. Home mortgage interest and real estate taxes are itemized deductions on Schedule A. If your standard deduction is larger than your total itemized deductions, you generally won’t benefit from itemizing.
No. For a personal residence, HOA/condo fees, homeowners insurance, utilities, repairs, and principal payments are not deductible. Only real estate taxes (within the SALT cap) and qualifying mortgage interest are.
Interest is deductible on acquisition debt up to $750,000 ($375,000 MFS) for loans taken after December 15, 2017, or up to $1,000,000 ($500,000 MFS) for grandfathered older loans. See IRS Publication 936.
How can SW Accounting help? 💼
At SW Accounting & Consulting Corp, we help LA-area homeowners and buyers run the itemize-vs-standard comparison under the new $40,000 SALT cap, apply the correct mortgage interest limits, evaluate the Mortgage Interest Credit if you hold an MCC, and avoid claiming non-deductible costs that invite IRS scrutiny. If the higher SALT cap changed your math, we’ll make sure you capture it.
📩 Schedule a homeowner tax-deduction review
Disclaimer: This article is for informational purposes only and is not legal or tax advice. Always consult a qualified professional regarding your specific facts. Primary sources: IRS Tax Tips for homeowners; IRS Publication 530 (Tax Information for Homeowners); IRS Publication 936 (Home Mortgage Interest Deduction); Internal Revenue Code §163(h) and §164.
