Tax season is upon us, and for many Americans, it can be not only a challenging time but also a confusing one. The Internal Revenue Service opened the tax filing season on Jan. 26. The deadline for filing (without an extension) is April 15.
For homeowners, there’s an added layer of difficulty, as tax rules relating to homeownership can change from one year to the next. There are several misconceptions, including whether homeowners can be exempt from federal income tax and whether homeownership plays any role in that status.
What’s more, there is a common misunderstanding about the distinction between being exempt from federal income tax and being able to take advantage of homeownership exemptions.
Understanding these differences helps homeowners not only navigate their taxes more easily but also lower their bills and offset some of their homeownership-related costs.
Who may legally qualify to be exempt from income tax?
Federal income tax applies to everyone, unless you are part of a specific group. This includes certain religious organizations and U.S citizens who are working abroad. But even most low-income taxpayers have to contribute something.
When it comes down to it, it’s the deductions you can rack up that lower your tax contributions and as Stephen Lockard, attorney at J&Y Law, explains, owning a home doesn’t automatically make you exempt from federal income tax.
“Tax exemptions are usually based on your income level, your age, or specific situations like having a qualifying disability. Homeownership doesn’t factor into whether you owe taxes, but it can affect how much you owe in taxes,” Lockard said.
“Homeownership itself has no impact on income tax at the federal level unless you are renting out the property, then it becomes income,” said Jay Zigmont, certified financial planner and founder of Childfree Trust.
Lowering how much you owe as a homeowner
One of the biggest misconceptions is conflating housing-related tax benefits, such as deductions, exemptions, or credits, and being fully exempt from federal income tax.
“They sound similar, but they do very different things,” said Lockard.
He explained that a deduction lowers the amount of income the government uses to calculate how much you owe in taxes.
For example, if you claim a mortgage interest deduction, you’re telling the IRS that part of your income went toward interest on your home loan, so you shouldn’t be taxed on that portion.
“Maybe it’s because your income is below a certain threshold or you fall into a very specific category, like certain low-income seniors or people with qualifying disabilities. Getting a deduction doesn’t mean you’re off the hook. You’re still filing, and you’re still part of the tax system,” he said.
Blaz Korosec, real estate agent and founder of real estate firm Investorade, said that another misconception is thinking that by simply owning a home, you’ll save thousands on taxes every year.
“The majority of homeowners don’t make enough in deductions to break above the standard deduction. That means your mortgage interest or property tax write-offs aren’t doing anything. Remember, tax perks for homeownership are tax savings, not tax avoidance. The average household saves 3% to 5% on its taxes by owning a home. That’s it,” he said.
What homeowners should realistically expect at tax time
The fact is, if you own a home, you should plan on paying some amount of taxes each year—and the more equity you build in your property, the more you’ll likely pay.
In addition, most of the tax breaks for homeowners are only available if you itemize your deductions instead of taking the standard deduction. Taking the time to do the math might be worth it.
For example, for tax year 2025, the One Big, Beautiful Bill (OBBB) increased the standard deduction amount. It’s now $31,500 for married couples filing jointly and $15,750 for single taxpayers and married individuals filing separately, according to the IRS.
Homeowners can deduct two major expenses: mortgage interest and property taxes. To that end, owners can fill out a 1098 form “to report mortgage interest of $600 or more received by you during the year in the course of your trade or business from an individual, including a sole proprietor,” according to the IRS.
“If you’re able to itemize deductions, the mortgage interest and property taxes you pay annually will save you somewhere around $2,000 to $5,000. That depends on your loan amount, local tax rate, and how much you pay for homeowners insurance,” Korosec said.
This could be very beneficial for newer homeowners as it could significantly lower their taxable income.
Another tax break from the OBBB, which starts this year, is the ability to deduct private mortgage insurance (PMI) premiums. PMI is an insurance policy lenders require if you don’t make a 20% down payment on a home. This is to protect lenders from potential defaults, but for homeowners, it balloons monthly payments.
Homeowners can deduct this if their adjusted gross income is below $100,000 (single or joint), or $50,000 (married filing separately).
In the end, the best strategy for homeowners looking to get their federal income tax contributions as close to zero as possible is to know what credits you’re eligible for before you start filing—and to think ahead as much as possible.
“I’ve had clients who played the game to owe nothing on their taxes, but in practice, it may hurt you,” Zigmont said. “For example, when you have no income tax in a year, you may want to do Roth conversions or tax gain harvesting to take advantage of the lower tax brackets. The key is that your tax plan should be focused on lowering your lifetime tax bill, not one specific year.”