Owning A Home - Your Primary Residence.
🏠 Should I buy? Or keep renting?
This is a big, complex question that I get all year long whenever people find out I do taxes. To keep it simple…
Remember that you have to live somewhere. When deciding whether to continue renting or purchasing a home, my first suggestion is always to keep it simple. Buy a home because it provides stability for you (and your family), or because it provides the lifestyle that you are looking for.
Don’t buy a house for the purpose of taxes. Once you do get a house, it is helpful to understand how taxes apply and any advantages you may get.
Pro Tip – If you are calculating the difference in price between renting & buying, think about your down payment and the opportunity cost of not having the income.
$100,000 down earns 5% interest in savings is $5,000 lost income/year.
💲 Tax implications
Standard Deduction
In order for a Primary Residence to help you each year, you will need to itemize your deductions. For married couples, the standard deduction in 2026 is $32,200 and $16,100 for singles.
If your itemized deductions are less than that amount, than they do not come into play. For most people, the standard deduction is so high that the homeowner benefit is low. It can still help, but not usually a lot.
Expenses
A common misunderstanding is that home expenses are deductible every year. Here is how they work…
When you buy a home, there are two types of expenses…
Cleaning & Maintenance – Basic Painting, plumbing, lawn care, etc.
Capital expenditure (CapEx) – Big costs. Roof, deck, kitchen or bathroom remodel.
Generally, cleaning and maintenance are not deductible. Capital expenditures only help when you sell a home. You need to keep track of them for as long as you own the house, so you have a full list to add to your taxes. This is explained further below.
🆕 New for 2026 – The federal credits that used to help with home upgrades – solar panels, batteries, heat pumps, and efficient windows – all ended after 2025. If you were counting on those, they are gone. We cover what is still around in Tax Credits.
💳 Property taxes & mortgage interest
We discuss itemized deduction in detail here – Deductions. Property Taxes and Mortgage Interest are two of the biggest items to help you itemize.
Property Taxes…
If you itemize, property taxes fall under the S.A.L.T. tax cap – SALT stands for State And Local Taxes. This includes both income tax and property tax in the same category.
The SALT cap limited those deductions to $10,000 from 2017 through 2025. For 2026, it has been raised to $40,400, with some income limitations (it phases back down for very high earners). This means higher earners and those with higher property taxes stand a good chance to benefit again.
Mortgage Interest…
Mortgage interest is not technically subject to a CAP, but you are limited by the total amount of debt you can use. It works like a cap, but instead of capping the interest, it caps how much of your debt qualifies – so there is no limit on the interest itself, which is worth more to those with higher rates.
Homes purchased before 2018 are allowed to take mortgage interest deduction on up to a $1,000,000 loan.
Homes Purchased after January 1, 2018 are only allowed to take a mortgage interest deduction on up to $750,000.
Any interest on additional loan or debt for your primary home is disallowed.
🆕 New for 2026 – If you pay mortgage insurance (PMI) because you put down less than 20%, those premiums count as deductible mortgage interest again starting in 2026. It phases out at higher incomes, so it mainly helps if you itemize and your income is on the lower side.
🏷️ Selling your home
Selling your home triggers something called ‘Capital Gains Tax’.
Short term capital gains applies to assets held for less than 1 year.
These assets (including your home) are taxed at your normal income tax rate.
Long term capital gains applies to assets held for longer than 1 year.
These assets are taxed at between 0 – 20% depending on your total income.
Your capital gain is determined by taking the final sale price of the home, and subtracting…
- The amount you originally paid for the house.
- The cost of capital expenditures during ownership
- The cost of selling your house, including commissions and escrow fees.
The left over amount is subject to capital gains, with one exception…
‼️ The big exemption
If you lived in your house for 2 years out of any of the last 5, you likely qualify for a primary residence exclusion of $250,000 per person.
This means that the capital gain on your home is excluded from taxes up to $250,000 for a single filer OR $500,000 for a married couple.
One thing worth knowing – these exclusion amounts have not been raised since 1997 and do not adjust for inflation, so as home values climb, more and more sellers are getting caught by them.
If your capital gain was $300,000, only $50,000 would be subject to taxes for a Single filer and $0 would be taxable for a couple filing married jointly.
Additionally, if you live in the house for 2 years, and then rent it out, you have 3 years to sell it and still take advantage of the above.
Many couples trade houses every 3 – 7 years with the sole purpose of taking advantage of this exclusion.
🏨 Partial rental
This can also be a big hack to your taxes. Primary Residences and Rental Properties are treated differently.
While primary residences are subject to standard deduction limitations, rental properties are not.
If you rent out a portion of your home, you can take that portion of mortgage interest, property taxes, and other expenses directly against the income. For many people who take the standard deduction, this turns into additional deductions to use on their tax return.
🤔 Parting Thoughts
As always, thanks so much for reading! I’d love to hear your thoughts on today’s newsletter, and if you enjoyed it, please let me know why! If you enjoy reading, please share these articles with anyone (subscribe here) that you feel might benefit.
If you have any additional questions, please reach out. We help individuals and businesses year-round with personal and business tax services.
Thanks,
– Taxman