Tax season is here, and if you own a home in Memphis, you could be sitting on thousands of dollars in savings without even realizing it. Whether you bought your first place last year or you’ve been a homeowner for decades, the tax code offers some serious perks that can lower what you owe — or bump up your refund.
The rules shifted in 2025 thanks to new federal legislation, and some of those changes are a big deal for Memphis homeowners. We’re breaking down every deduction and credit worth knowing about so you can walk into tax season prepared.
And if you’re still renting and wondering whether buying makes financial sense, this might just tip the scales. Let’s get into it.
Itemizing vs. the Standard Deduction
Before we talk about specific tax breaks, there’s one decision that determines whether most of them even matter: itemizing your deductions versus taking the standard deduction.
For the 2025 tax year (the return you’re filing now in early 2026), the standard deduction is $15,750 for single filers and $31,500 for married couples filing jointly. If your total itemized deductions — mortgage interest, property taxes, charitable donations, and so on — add up to more than those numbers, itemizing saves you money.
If they don’t, you take the standard deduction and move on. Most homeowners should at least run the numbers both ways, and any decent tax software will do this automatically. The key deductions below are all itemized, unless we note otherwise.
The Mortgage Interest Deduction
This is the big one. If you have a mortgage on your Memphis home, you can deduct the interest you pay on up to $750,000 of mortgage debt ($375,000 if you’re married filing separately). For homeowners who purchased before December 15, 2017, the cap is $1,000,000.
Here’s why this matters so much, especially in the early years of your loan: when you first start making mortgage payments, the vast majority of each payment goes toward interest rather than principal. That means your deduction is at its highest right when you need it most — when you’ve just taken on a major financial commitment.
Your lender will send you a Form 1098 in January or early February showing exactly how much mortgage interest you paid in 2025. Hold onto that form. It’s your ticket to this deduction.
If you’re a first-time buyer who purchased in 2025, congrats — you’re likely looking at one of the largest deductions available to individual taxpayers. If you’re still thinking about buying, check out our first-time homebuyer guide for Memphis to get started on the right foot.
Mortgage Points Can Save You Twice
When you bought your home, you may have paid “discount points” to lower your interest rate. Each point typically costs 1% of your loan amount and reduces your rate by about 0.25%.
The IRS treats mortgage points as prepaid interest, which means you can deduct them on your taxes the year you purchase your home. If you refinanced and paid points, you’ll generally deduct them over the life of the loan instead — but they’re still deductible.
This is one of those deductions people forget about because it happened at closing and felt like just another line item on a very long settlement statement. Go back and check your closing documents if you’re not sure.
Property Tax Deductions Got a Major Upgrade
Here’s where things get interesting for 2025. For years, the state and local tax (SALT) deduction was capped at $10,000 — a limit that frustrated homeowners in areas with higher property taxes. The One Big Beautiful Bill Act, signed into law in July 2025, raised that cap to $40,000 ($20,000 for married filing separately).
That’s a massive change. For Memphis homeowners, property taxes vary by neighborhood and municipality, but this expanded cap means far more homeowners can now deduct the full amount of their property taxes when they itemize.
The SALT deduction covers state and local taxes, which includes your property taxes plus either state income taxes or state sales taxes (you pick whichever is higher). Tennessee doesn’t have a state income tax, so Memphis homeowners would combine their property taxes with state and local sales taxes paid throughout the year.
For a detailed look at what’s available across Memphis neighborhoods, explore homes in Germantown, Collierville, Bartlett, and other areas on our site. Understanding your home’s value helps you plan for property tax assessments too.
Home Equity Loan Interest
If you’ve taken out a home equity loan or home equity line of credit (HELOC), the interest may be deductible — but there’s a catch. The loan must be used to “buy, build, or substantially improve” your home. If you used a HELOC to pay off credit card debt or fund a vacation, that interest isn’t deductible.
Used it to renovate your kitchen or add a deck? You’re in the clear. The combined total of your primary mortgage and home equity debt can’t exceed $750,000 for the interest to qualify.
Memphis homeowners who’ve built up equity over the past few years might find this especially relevant. If you’re curious about how much equity you’ve gained, reach out to our team and we can help you understand your home’s current market value.
Energy-Efficient Home Improvements
If you made energy-efficient upgrades to your Memphis home in 2025, you could be looking at some valuable tax credits. And unlike deductions, credits reduce your tax bill dollar-for-dollar — they’re worth more.
There are two main categories:
Residential Clean Energy Credit
Installed solar panels, a solar water heater, a geothermal heat pump, or a wind energy system? You can claim 30% of the installation cost as a tax credit. There’s no cap on this one (except for fuel cell property), making it one of the most generous tax breaks available to homeowners.
Energy-Efficient Home Improvement Credit
This covers more common upgrades like Energy Star-certified heat pumps, water heaters, furnaces, insulation, roofing, and windows. You can get credits ranging from $50 to $300 for qualifying equipment, plus 10% of the cost for certain improvements like insulation and roofing.
Here’s the important part: these energy-efficiency tax credits are set to expire after the 2025 tax year. If you made qualifying improvements last year, make sure you claim them on IRS Form 5695. And if you installed an electric vehicle charging station at home, you can get back 30% of the cost up to $1,000 — that credit lasts through June 2026.
Home Office Deduction
If you’re self-employed and use part of your Memphis home “exclusively and regularly” for business, you can deduct home office expenses. This applies whether you own or rent, but as a homeowner, the deduction can be particularly valuable since it can include a portion of your mortgage interest, property taxes, insurance, utilities, and repairs.
The simple method lets you deduct $5 per square foot of your home office, up to 300 square feet (a maximum $1,500 deduction). The regular method involves calculating the actual percentage of your home used for business, which can yield a larger deduction but requires more detailed record-keeping.
One important note: this deduction is for self-employed individuals and business owners. If you’re a W-2 employee working from home, you generally can’t claim it, even if your employer requires you to work remotely.
Mortgage Credit Certificates for First-Time Buyers
This one flies under the radar, but it can be a game-changer. Some first-time homebuyers (defined as not having owned a home in the past three years) qualify for a Mortgage Credit Certificate (MCC) through state or local housing programs.
An MCC lets you claim a percentage of your annual mortgage interest as a direct tax credit — not just a deduction. Credit rates vary by state and can range from 10% to 50%, up to a maximum of $2,000 per year. That’s $2,000 directly off your tax bill, every year, for the life of your loan.
The catch is that you need to apply for an MCC before you close on your home, usually through an approved lender. If you’re planning to buy in 2026, ask your lender about MCC availability in Tennessee. And if you’re exploring financing options, our first-time homebuyer guide covers the ins and outs of FHA, VA, and conventional loans for Memphis buyers.
Capital Gains Exclusion When You Sell
This isn’t a deduction you’ll claim this filing season (unless you sold in 2025), but it’s worth understanding as part of the overall financial picture of homeownership.
When you sell your primary residence, you can exclude up to $250,000 in capital gains from your taxable income ($500,000 for married couples filing jointly). To qualify, you need to have owned and lived in the home for at least two of the five years before the sale.
For many Memphis homeowners, this means you could sell your home at a significant profit and owe zero capital gains tax. Given that the Memphis market has remained steady and many homeowners have seen equity growth over the past several years, this exclusion could be worth tens of thousands of dollars when the time comes to sell.
Private Mortgage Insurance Gets Better in 2026
If you put less than 20% down on your home and you’re paying private mortgage insurance (PMI), there’s good news on the horizon. Starting with the 2026 tax year, PMI premiums will be treated as deductible mortgage interest under the One Big Beautiful Bill Act. That means they’ll be included in your mortgage interest deduction going forward.
For the 2025 tax year you’re filing now, PMI deductibility depends on your specific situation and income level. Check with your tax professional, but know that the rules are becoming more favorable for homeowners who carry PMI.
This is particularly relevant for Memphis buyers who used FHA loans or conventional loans with lower down payments. If you purchased with less than 20% down, keep an eye on this change for next year’s filing.
What Renters Are Missing Out On
None of these tax benefits apply to renters. Zero. When you write a rent check every month, that money is gone — it builds no equity and generates no tax deductions.
Homeownership isn’t right for everyone at every stage of life, and we’d never pressure someone into buying before they’re ready. But the financial advantages are real and measurable. Between mortgage interest deductions, property tax deductions, energy credits, and the eventual capital gains exclusion, owning a home in Memphis delivers tax benefits that can add up to thousands of dollars every single year.
If you’ve been on the fence about whether 2026 is the year to buy, the math might be more favorable than you think. Let’s talk about what a purchase could look like for your specific situation.
Tips to Maximize Your Tax Benefits This Season
Here are a few practical steps to make sure you’re not leaving money on the table:
Gather your documents early. You’ll need your Form 1098 (mortgage interest), property tax statements, receipts for any home improvements, and closing documents if you bought or refinanced in 2025.
Run the numbers both ways. Compare your total itemized deductions against the standard deduction. With the higher SALT cap, more homeowners will benefit from itemizing this year than in previous years.
Don’t forget state and local sales taxes. Since Tennessee has no state income tax, you can deduct sales taxes instead. The IRS provides tables based on your income and location, or you can track actual receipts for larger purchases.
Keep records of home improvements. Even if they don’t qualify for a current deduction, improvements increase your cost basis, which reduces your taxable gain when you eventually sell.
Work with a tax professional. The tax code is complex, and a good CPA or tax advisor can often find deductions you’d miss on your own. The cost of professional tax preparation is usually worth it for homeowners.
Let’s Make 2026 Your Year
Tax season is a great reminder of the real, tangible financial benefits that come with owning a home. Whether you’re a current homeowner looking to understand your deductions or someone considering a purchase this year, knowledge is the first step toward making smart financial decisions.
At Reid Realtors, we’re a third-generation, family-owned team that believes in personalizing your real estate experience. We know the Memphis market inside and out — from Collierville to Bartlett, Germantown to East Memphis and Lakeland.
Whether you want to understand your home’s current value, explore what you could buy this year, or just have questions about the market, we’d love to hear from you. Contact us today and let’s start the conversation.