The Homeowner’s Tax Advantage
Owning a home is a cornerstone of building financial security. It also comes with significant tax benefits. For many taxpayers, the federal deduction for homeownership expenses is a major reason to itemize their deductions. If your itemized deductions are greater than the standard deduction, you should itemize.
The core homeowner deductions remain in place for 2025:
- Mortgage Interest: You can deduct the interest paid on a mortgage secured by your primary or secondary residence. The limit for this deduction is on debt up to $750,000.
- State and Local Taxes (SALT): This includes property taxes, as well as state and local income or sales taxes.
However, tax laws are constantly changing. Military families need to pay close attention to new rules and unique benefits.
Key Tax Changes for 2025
The start of 2025 brings some important changes that directly impact homeowners. Knowing these now helps you plan your financial record-keeping.
1. Increased SALT Cap
For 2025, there is a significant change to the State and Local Tax (SALT) deduction cap. Previously, it was capped at $10,000. Under new legislation, the cap is set to increase to $40,000 for many taxpayers. This is a huge benefit for homeowners in areas with high property taxes, like many popular military duty stations. This change could mean thousands more dollars in deductions for you.
2. Energy Credits are Changing
If you made energy-efficient home improvements, act fast. The federal tax credits for certain energy-efficient home upgrades, such as windows, doors, insulation, and solar installations, are set to expire at the end of 2025. If you are planning an upgrade, complete the work and get your documentation before the deadline. These credits are dollar-for-dollar reductions in your tax bill.
3. Mortgage Insurance Deduction Status
In the past, Private Mortgage Insurance (PMI) payments were deductible. This provision was temporarily extended but is scheduled to expire. Check with your tax professional to confirm the final status of this deduction for the 2025 tax year. Many military families using conventional financing or making a smaller down payment need this deduction.
Special Tax Incentives for Military Families
The tax code offers special provisions recognizing the unique nature of military life. These can save military homeowners significant money.
- BAH and Deductions: You can still deduct your mortgage interest and real estate taxes even if you receive a tax-exempt Basic Allowance for Housing (BAH). The IRS does not require you to reduce these deductions based on your BAH amount.
- PCS Moving Expenses: Active duty service members moving due to a Permanent Change of Station (PCS) can deduct unreimbursed moving expenses. This is an “above-the-line” deduction. You can take it even if you take the standard deduction.
- Home Sale Exclusion Extension: Normally, you must live in your home for two out of the past five years to exclude capital gains (up to $500,000 for joint filers) when you sell. If you are on qualified extended duty, the IRS allows you to suspend this five-year test period for up to 10 years. This is a powerful benefit for military homeowners who PCS frequently.
- Disabled Veteran Property Tax Exemptions: Many states offer full or partial property tax exemptions for veterans with service-connected disabilities, particularly those rated 100% permanently and totally disabled. This is a state-level benefit. Check your state’s Department of Veterans Affairs.
Your 2025 Tax Prep To-Do List
Prepare now to make filing simple next year.
- Create a Digital Folder: Create a dedicated 2025 Tax folder on your computer or cloud storage.
- Save Your Closing Disclosure: Keep the final settlement statement (Form 1099-S or Closing Disclosure) for any home purchase or sale in 2025.
- Track SALT Payments: Get a copy of your Form 1098 from your lender. It shows your mortgage interest and often includes property taxes paid.
- Document Home Improvements: Save all receipts and invoices for major home repairs or energy efficiency upgrades made in 2025.
- PCS Expense Log: Keep a detailed log of all unreimbursed moving costs related to a PCS.
Consult a qualified tax advisor or utilize free military tax resources like Mil
