As 2025 comes to an end, many families are preparing for income tax season—and looking ahead to how the new 2026 tax law changes will affect their finances. Whether you already own a home or plan to buy next year, several provisions in the updated tax bill will directly impact deductions, credits, and long-term planning.
Below is a breakdown of the most important changes for homeowners and prospective buyers.
1. The Standard Deduction Is Decreasing
Beginning in 2026, the temporary increases to the standard deduction under the 2017 Tax Cuts and Jobs Act (TCJA) expire.
New 2026 standard deduction estimates:
- $16,300 for single filers (down from ~ $21,900 in 2025)
- $32,600 for married couples filing jointly (down from ~ $43,800 in 2025)
Why this matters:
A lower standard deduction means more homeowners may find it advantageous to itemize—making deductions like mortgage interest and property taxes more valuable again.
2. Mortgage Interest Deduction Limit Restores to $1 Million
One of the biggest homeowner-specific changes is the return of the higher mortgage interest deduction cap.
Starting in 2026:
- Mortgage interest will again be deductible on loans up to $1,000,000 (from the current $750,000 cap).
- The higher cap applies to both new and existing mortgages.
Impact in the Bay Area:
Given local home prices, this change will meaningfully increase the potential tax benefits for many Peninsula and Silicon Valley owners and buyers.
3. SALT Deduction Cap Goes Away
The current $10,000 cap for State and Local Taxes (SALT) expires at the end of 2025.
In 2026:
- Homeowners can again deduct all state and local income taxes, plus property taxes, without the $10,000 limit.
Impact:
Bay Area households—especially dual-income families—stand to benefit significantly.
4. Home Equity Loan Interest Becomes Fully Deductible
Under the current rules, home equity loan interest is only deductible if funds are used to improve the home.
In 2026:
- Home equity loan and HELOC interest becomes fully deductible, regardless of how the funds are used.
This may affect planning for renovations, debt consolidation, or strategic financing for investment opportunities.
5. Personal Exemptions Return
The tax bill restores personal exemptions, which had been suspended since 2018.
For families with children or dependents, this can provide meaningful additional deductions.
6. Lower Estate Tax Exemption Threshold
The federal estate tax exemption is scheduled to decrease significantly.
In 2026:
- The exemption drops from ~$13 million per person to roughly $6–7 million (adjusted for inflation).
Why this matters:
High-net-worth households may want to consult their estate planning attorney or CPA to evaluate gifting strategies, trusts, or other planning tools in 2025.
7. No Change to Capital Gains Exclusion on Home Sales
The rules remain the same for homeowners selling a primary residence:
- Up to $250,000 in capital gains excluded for single filers
- Up to $500,000 excluded for married couples filing jointly
- Must meet the 2-of-5-year rule
While unchanged, this continues to be one of the most valuable homeowner tax benefits.
What Should Homeowners Do Before 2025 Ends?
Here are steps to consider now to make the most of the transition:
1. Evaluate whether refinancing in 2025 has tax advantages
If your mortgage is between $750,000 and $1 million, refinancing this year versus next may impact your deductible interest.
2. Revisit whether you’ll itemize in 2026
The lower standard deduction will push more Bay Area homeowners back into itemizing. Consider how mortgage interest, property taxes, and state income taxes add up.
3. Meet with a CPA or tax strategist
Particularly important if:
- Your property taxes exceed the current SALT cap
- You anticipate purchasing in 2026
- Your estate may be impacted by the exemption reduction
- You want to use a HELOC or home equity loan in 2026
Final Thoughts
With the cost of homeownership and financing evolving, the 2026 tax changes bring both opportunities and new planning considerations for Bay Area homeowners. If you want help understanding how these updates may affect your buying, selling, or refinancing plans, I’m here as a resource.
Looking for guidance?
Contact me anytime for a connection to a trusted CPA, mortgage consultant, or for a personalized home value and planning review.
