Real Estate and Taxes: What Every Homeowner Needs to Know This Season

Tax season is a good reminder that your home isn't just where you live — it's one of your most powerful financial tools. From deductions to capital gains exclusions, here's what homeowners should understand before filing.

Tax season is a good reminder that your home isn’t just where you live — it’s one of your most powerful financial tools. From deductions to capital gains exclusions, here’s what homeowners should understand before filing.

Note: Tax laws change frequently. Always consult a qualified tax professional for advice specific to your situation.

The Mortgage Interest Deduction

If you itemize deductions, you may be able to deduct the interest paid on mortgage debt up to $750,000 (for loans originated after December 15, 2017). For most homeowners in their early years of a mortgage — when interest makes up the bulk of each payment — this can represent a meaningful deduction.

However, with the standard deduction now at $14,600 for single filers and $29,200 for married filing jointly (2024 figures), many homeowners no longer benefit from itemizing. Your CPA can run the numbers for your specific situation.

Property Taxes: Deductible but Capped

Property taxes are deductible as part of the SALT (State and Local Tax) deduction — but the SALT deduction is currently capped at $10,000 per year ($5,000 if married filing separately). For homeowners in high-tax states like California, this cap often limits the benefit.

The Capital Gains Exclusion — One of the Best Tax Breaks in the Code

When you sell your primary residence, you may be able to exclude up to $250,000 in capital gains from your taxable income ($500,000 if married filing jointly). To qualify:

• The home must have been your primary residence
• You must have owned and lived in it for at least 2 of the last 5 years
• You cannot have claimed this exclusion in the past 2 years

For many Santa Cruz County homeowners who’ve seen significant appreciation, this exclusion can mean the difference between a large tax bill and owing nothing on the sale.

Home Office Deduction (for Self-Employed)

If you’re self-employed and use part of your home exclusively and regularly for business, you may be eligible for a home office deduction. W-2 employees cannot claim this deduction under current law.

Keep Records of Your Home Improvements

Capital improvements — renovations that add value, extend the life of your home, or adapt it to new uses — increase your cost basis. A higher cost basis means less taxable gain when you eventually sell. Keep receipts for:

• Kitchen or bathroom remodels
• Room additions
• New roof, HVAC, or windows
• Landscaping and outdoor structures

Normal repairs and maintenance (painting, fixing a leaky faucet) do not increase your basis.

If You’re Selling This Year

If you’re planning to sell in 2026, talk to both your real estate agent and your CPA before you list. Understanding your tax exposure helps you:

• Price your home strategically
• Time your closing to optimize your tax year
• Plan for what you’ll net after all costs

At Reign Home, we partner with trusted local financial professionals and are happy to make introductions. Understanding the full financial picture of a sale — not just the sale price — is part of how we serve our clients.