In today’s U.S. economy, there may still be tax advantages to owning a home versus renting, but those advantages depend on several factors, such as your tax filing situation, your mortgage terms, and whether you itemize deductions. For an overview on the current state of tax advantages related to homeownership and renting:
Tax Advantages of Homeownership (Principal Residence):
- Mortgage Interest Deduction:
- Homeowners with a mortgage may be able deduct the interest paid on the loan, which can reduce your taxable income. This is especially valuable in the early years of a mortgage when interest payments are higher.
- For mortgages incurred after December 15, 2017, the mortgage interest deduction is limited to loans of up to $750,000 ($375,000 for single filers). For mortgages before that date, the limit remains $1 million ($500,000 for single filers).
- However, if you have a smaller mortgage, the impact of this deduction will be less significant.
- Property Tax Deduction:
- Homeowners may be able to deduct property taxes paid on their home, which can provide additional tax savings. However, this is currently subject to a $10,000 cap ($5,000 for single filers) on state and local taxes (SALT), which includes property taxes, income taxes, and sales taxes. This cap was introduced by the Tax Cuts and Jobs Act (TCJA) and limits the deduction for many taxpayers (especially in blue states).
- Capital Gains Exclusion:
- If you sell your primary residence, you may be able to exclude up to $250,000 ($500,000 for married couples filing jointly) in capital gains from taxation, provided you have lived in the home for at least two of the last five years. This is a significant advantage for homeowners who experience substantial appreciation in the value of their property.
- Equity Building:
- While not a direct tax benefit, owning a home allows you to build equity over time as you pay down the mortgage. This equity can be used in the future, either by selling the home or borrowing against it through a home equity loan or line of credit (HELOC).
- Estate Planning:
- You may receive a step-up in basis upon your passing, reducing the capital gains on your home.
Challenges and Considerations for Homeowners (Principal Residence):
- Standard Deduction vs. Itemizing:
- The standard deduction has increased substantially in recent years, reducing the number of people who benefit from itemizing their deductions. In 2025, the standard deduction for a married couple filing jointly is $27,700 ($13,850 for single filers). If your total itemized deductions (including mortgage interest, property taxes, and other deductible expenses) do not exceed the standard deduction, it is possible that you may not benefit from tax breaks associated with homeownership.
- Higher Mortgage Rates:
- Rising mortgage rates, which have been a feature of the current economy, have made homeownership more expensive for many. Higher interest rates increase monthly payments, making it harder for some buyers to take advantage of mortgage interest deductions.
- Maintenance and Upkeep Costs:
- Homeownership comes with additional expenses like maintenance, repairs, insurance, and property taxes that renters do not face. While these costs aren’t directly tax-deductible, they add to the total cost of owning a home.
- Asset Protection:
- Most homeowners do not take measures to protect their principal residence.
- Long-Term Care Planning:
- Exemption limits for long-term care planning may affect your decision to sell or keep your principal residence.
Renting:
- No Tax Deductions for Renters:
- Renters do not get the benefit of tax deductions like mortgage interest or property taxes. Rent payments are not deductible, and there are no tax advantages to renting.
- However, renters avoid many of the costs associated with homeownership (i.e., maintenance, property taxes, insurance) and can be more flexible in terms of where they live and their ability to move without the burden of selling a home.
Economic Context in 2025:
- High Housing Prices and Mortgage Rates:
- In recent years, home prices have remained high, and mortgage rates have risen significantly. This means the upfront costs and ongoing expenses of owning a home have increased, which might make renting more appealing in certain areas.
- Renting might be more financially sensible for people who cannot afford the higher upfront costs (i.e., down payments) or ongoing costs (i.e., higher mortgage payments) of homeownership.
- Regional Variations:
- The financial and tax advantages of owning versus renting also depend on where you live. In high-cost-of-living areas, renting might be more affordable compared to buying, even when accounting for the tax deductions of homeownership.
Conclusion:
In today’s U.S. economy, there can still be tax advantages to owning a home, particularly if you are able to itemize deductions and take advantage of the mortgage interest deduction, property tax deduction, and capital gains exclusion. However, these advantages may be less pronounced due to higher mortgage rates and the increased standard deduction, which has led many taxpayers to take the standard deduction instead of itemizing.
For many people, especially those with lower home prices and smaller mortgages, renting might be more financially sensible in the current environment. However, if you are planning to live in your home for a long time, expect property value appreciation, or are able to take full advantage of the tax benefits, homeownership can still provide long-term financial benefits.
It is important to weigh your specific financial situation, lifestyle preferences, and long-term goals when deciding whether to buy or rent in today’s economic climate. Consulting with a real estate, financial advisor, or tax professional can help you make an informed decision.