Is Buying a Home Tax Deductible in California? Complete 2026 Guide

The Direct Answer

The home purchase itself isn't tax deductible, but California homeowners can claim significant deductions for mortgage interest (up to $750,000 federal / $1,000,000 California), property taxes under the expanded $40,400 SALT cap (2026), and—new this year—private mortgage insurance premiums. These deductions can reduce your tax liability by thousands annually.

⚠ Major 2026 Tax Law Changes

The One Big Beautiful Bill Act (OBBBA) significantly expanded homeowner benefits: SALT cap raised to $40,400, PMI now deductible as mortgage interest, and the $750K mortgage interest limit made permanent. However, solar and energy credits expired December 31, 2025.

$40,400

2026 SALT Cap

Up from $10,000

$750K

Federal Mortgage Limit

Now permanent

$1M

California Limit

More generous than federal

PMI

Now Deductible

Starting 2026

What Home Buying Costs Are Tax Deductible in California?

California homeowners can deduct several costs associated with homeownership, though not the purchase price itself. The primary deductible expenses include mortgage interest, property taxes, and certain loan-related fees. These deductions apply to both primary residences and qualifying second homes.

Understanding how federal and California state tax rules interact is crucial for maximizing your savings—California has several provisions that differ from federal law, sometimes to your advantage.

Federal vs. California Tax Deduction Rules: 2026

Deduction

Federal

California

Mortgage Interest Limit

$750,000

$1,000,000 ✓

SALT Deduction Cap

$40,400 (2026)

Follows federal

PMI Premiums

Deductible (new 2026)

NOT deductible ✗

Home Equity Loan Interest

Only if for home improvement

Fully deductible ✓

Energy Credits (Solar)

Expired 12/31/2025

State credits may apply

Mortgage Interest Deduction: California Rules and Limits

Mortgage Interest Deduction

Largest Tax Benefit

The mortgage interest deduction represents the largest tax benefit for most California homeowners. The One Big Beautiful Bill Act made the $750,000 debt limit permanent for homes purchased after December 15, 2017. Homes purchased before this date can still deduct interest on up to $1 million.

California Advantage: California did not conform to the federal $750,000 limit and still allows mortgage interest deductions on up to $1,000,000 of home acquisition debt. This means California homeowners with mortgages between $750,000 and $1 million can claim the difference as a state itemized deduction adjustment.

📊 Los Angeles Example

A Pasadena homeowner purchases a $1.2 million home with a $960,000 mortgage at 6.5% interest.

Annual interest paid: $62,400

Federal deductible amount: Interest on $750,000 = $48,750

California deductible amount: Interest on $960,000 = $62,400

Additional CA state deduction: $62,400 − $48,750 = $13,650
At 9.3% CA tax rate = ~$1,269 additional state tax savings

SALT Deduction: Major 2026 Expansion

State and Local Tax (SALT) Deduction

Expanded 2026

The SALT deduction cap increased dramatically under the One Big Beautiful Bill Act—from $10,000 to $40,000 for 2025, with 1% annual inflation adjustments making the 2026 cap $40,400 ($20,200 for married filing separately).

What's included: State income taxes OR sales taxes (choose one), plus property taxes. For most California homeowners, state income taxes plus property taxes easily exceed the new cap.

Income Phase-Out Warning

The expanded SALT deduction phases out for taxpayers with modified AGI above $500,000 ($250,000 MFS). The deduction reduces by 30% of income above this threshold, reverting to $10,000 at $600,000+ AGI. High-income California earners may see limited benefit.

📊 SALT Calculation Example

A Los Angeles homeowner with a $1 million home:

CA State Income Tax: ~$25,000

LA County Property Tax (1.25%): ~$12,500

Total SALT: $37,500

Previous cap (2024): Could only deduct $10,000
New 2026 cap: Can deduct full $37,500
Additional deduction: $27,500 → ~$6,050 federal tax savings (22% bracket)

Private Mortgage Insurance (PMI): New 2026 Deduction

PMI Deduction

New for 2026

Starting in 2026, private mortgage insurance premiums are now treated as deductible mortgage interest under federal law. This benefits buyers who put down less than 20% and are required to carry PMI.

Phase-out: The PMI deduction phases out at AGI above $100,000 ($50,000 MFS), reducing by 10% for each $1,000 over the threshold. Fully phased out at $110,000 AGI.

California Does Not Conform

California does not allow a deduction for mortgage insurance premiums. This deduction only reduces your federal tax liability, not your California state taxes.

📊 PMI Savings Example

First-time buyer with 10% down on $800,000 home, AGI of $95,000:

Annual PMI cost: ~$4,800

Federal tax savings (22% bracket): ~$1,056

Note: No California state savings—PMI not deductible for state taxes

Points and Loan Origination Fees

Points paid to reduce your mortgage interest rate are generally deductible in the year of purchase, provided they meet IRS requirements. In California's competitive market, buyers often pay points to secure better rates on jumbo loans.

Requirements for immediate deduction:

✓

Paid Directly Not from loan proceeds

✓

Percentage Based Calculated on loan amount

✓

Primary Residence Your main home

✓

Local Practice Consistent with area norms

What Home Purchase Costs Are NOT Deductible?

✕

Closing Costs Title insurance, escrow fees, recording fees, attorney fees, appraisal—typically 1-3% of purchase price

✕

Insurance Premiums Homeowners, earthquake, and flood insurance (PMI now federal-deductible only)

✕

HOA Fees Monthly dues common in California condos and planned communities

✕

Moving Expenses Not deductible unless active-duty military with qualifying relocation

✕

Home Improvements Added to cost basis instead—reduces capital gains when you sell

✕

Solar/Energy Credits Federal credits expired December 31, 2025—check for remaining CA credits

Documentation Required for Tax Deductions

Required Records Checklist

✓

Form 1098 Mortgage interest statement from lender

✓

Property Tax Bills Official county assessor statements

✓

Closing Disclosure Shows points paid at settlement

✓

PMI Statements For new federal deduction

✓

Bank Statements Proving payment amounts

✓

HOA Statements Distinguish special assessments

Maintain records for at least 3 years after filing—7 years recommended for home purchases.

Tax Planning Strategies for 2026

01

Maximize the New SALT Cap

With the $40,400 cap, more California homeowners will benefit from itemizing. Review whether your total deductions now exceed the standard deduction ($15,000 single / $30,000 married).

02

Time Property Tax Payments

Consider timing December property tax payments strategically. With higher SALT limits, prepaying may now provide benefits it didn't before.

03

Evaluate PMI Removal

If AGI is under $100,000, the new PMI deduction may make keeping PMI temporarily worthwhile. Run the numbers before rushing to hit 20% equity.

Frequently Asked Questions

Q Can I deduct home inspection costs?

No, inspection costs are not deductible but can be added to your cost basis, which reduces capital gains when you eventually sell.

Q What happened to the solar panel tax credit?

The federal Section 25C Energy Efficient Home Improvement Credit expired December 31, 2025 under the OBBBA. Solar panels purchased after this date no longer qualify for federal credits. Some California state incentives may still be available—check with your tax professional.

Q Are there different rules for condos vs single-family homes?

Deduction rules are identical. Condo owners should carefully distinguish between non-deductible regular HOA fees and potentially deductible special assessments for capital improvements.

Q Can I deduct home equity loan interest?

Federal law only allows deduction if proceeds are used for home improvements. However, California does not conform—home equity loan interest is fully deductible on your California state return regardless of use.

Q What if my income is over $500,000?

The expanded SALT deduction phases out above $500,000 AGI ($250,000 MFS), reducing by 30% of income over the threshold. At $600,000+, the cap reverts to $10,000. High earners should work with a tax professional on alternative strategies.

Q When should I consult a tax professional?

Given California's high property values and complex tax environment, consult a CPA when your home purchase exceeds $750,000, you're approaching SALT limits, you have multiple properties, or you have significant self-employment income.

JB

Justin Borges

Justin Borges is Team Leader of The Borges Real Estate Team at eXp Realty. With over 13 years of experience and more than $200 million in career sales, Justin helps Los Angeles homeowners navigate complex real estate decisions with clarity and confidence.

$200M+ Sold 13+ Years Experience DRE #01940318

Disclaimer: This article provides general information about California home tax deductions and should not be considered tax advice. Tax laws change frequently—the 2026 changes described reflect the One Big Beautiful Bill Act provisions. Consult a qualified tax professional for advice specific to your situation. Contact The Borges Real Estate Team at (213) 262-5092 for home buying guidance in Los Angeles.