992. This week, Laura reviews how being a homeowner in 2026 allows you to build wealth despite affordability challenges.
992. This week, Laura reviews how being a homeowner in 2026 allows you to build wealth despite affordability challenges.
Find a transcript here.
Have a money question? Send an email to money@quickanddirtytips.com or leave a voicemail at (302) 364-0308.
Find Money Girl on Facebook and Twitter, or subscribe to the newsletter for more personal finance tips.
Money Girl is a part of Quick and Dirty Tips.
Links:
https://www.quickanddirtytips.com/
https://www.quickanddirtytips.com/money-girl-newsletter
https://www.facebook.com/MoneyGirlQDT
While buying a home isn’t easy, especially as home prices and mortgage rates have risen in recent years, homeowners enjoy more than just a roof over their heads. Owning a home can be one of the most powerful ways to build wealth, even while you sleep in it.
This podcast will review how homeownership supercharges your finances and also offers non-financial benefits. I’ll review eight ways a home builds your wealth and wellness, including new and updated tax rules.
Welcome back everyone! This episode 992 of Money Girl! I appreciate you being here and downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, my Substack newsletter and community.
When you subscribe to The Money Stack, you’ll automatically get invitations to my live educational and Q&A events. I’d love to see you at my next workshop. It's called “Set Your Money Strategy for 2026: How to Prioritize & Achieve Financial Goals.” This is a going to be a great workshop that can really get your year off on the right foot. Visit LauraDAdams.com to learn more and sign up! And you will automatically get information on how to attend this live event.
RELATED: Is buying an affordable home still possible?
8 ways homeownership builds wealth in 2026
While homeownership isn’t right for everyone, it can improve your financial life when the time is right. To compare the pros and cons of renting and owning a home, I podcasted about this before. Check out podcast 894, Will Renting or Owning a Home Make You Wealthier?.
A significant advantage of homeownership can come in tax benefits, so let’s start there.
1. Claiming the mortgage interest deduction.
So every year, taxpayers can choose to claim a standard tax deduction. And it's based on your tax filing status, such as single or filing a joint tax return with a spouse. So you can claim the standard or you can itemize your deductions on a form called Schedule A, Itemized Deductions. So you can look through that form and basically see all the potential itemized deductions.
Now those aren't the only deductions out there. There are some deductions that you can claim even if you don't itemize. But the ones that you can claim for itemizing are generally pretty valuable.
So if the total of your itemized deductions is greater than the standard deductions, itemizing will reduce your taxes and save money. Therefore, I recommend keeping track of your deductible expenses throughout the year so you (or your tax preparer) can make an informed decision and save the most money at tax time.
The mortgage interest deduction is a benefit that’s only available if you itemize. You can deduct interest paid on up to $750,000 of mortgage debt, or half that amount $375,000 if you’re married and file taxes separately. However, a higher limit of interest paid on up to $1 million of mortgage debt (or half the amount $500,00 if married filing separately) applies if you took out your home loan before December 16, 2017.
The allowable deduction includes interest that you pay on loans secured by your main home and a second home, if you have one. And it includes first or second mortgages, home improvement loans, home equity loans, home equity lines of credit (HELOCs), and refinanced mortgages. In addition to interest, you can also deduct things like late payment charges, prepayment penalties, and prepaid interest, like points that you may have paid when you took out your loan.
Let’s say you have a 30-year, fixed-rate mortgage of $250,000 at 6% interest. Your payment for principal and interest would be close to $1,500 per month, or $18,000 per year. In the first year, your mortgage payments would break down into about $3,000 paid toward the principal balance and $15,000 toward interest.
If you claim the mortgage interest deduction, that’s $15,000 that you can deduct from your taxable income. And depending on your income and average tax rate, the deduction could cut your tax bill or increase your tax refund by thousands of dollars!
Just so you’re aware, for 2025, the standard deduction is:
So if you’re single and the total of your annual eligible tax deductions–such as mortgage interest, charitable contributions, and a certain amount of medical expenses–exceeds the standard deduction of $15,750, you’ll come out ahead by itemizing for 2025.
Now a common question I hear about the mortgage interest deduction is well Laura, what happens if I own a home with someone who isn't your spouse. In that case, you can claim a deduction for the portion of the mortgage that you paid. So, if you own a portion of the home, keep good records, so you can calculate your portion of the interest paid in case you can itemize tax deductions.
2. Deducting private mortgage insurance (PMI) starting in 2026.
If you put down less than 20% on a home purchased with a conventional mortgage, you’re likely paying private mortgage insurance. This used to be a tax-deductible expense, but it hasn’t been available as a tax break for the past few years.
However, starting in the 2026 tax year, you can treat PMI as part of deductible mortgage interest if you meet an annual income limit and you itemize deductions. If your annual income is less than $109,000, or less than $54,500 if you’re married and file taxes separately, you can deduct PMI.
The standard deduction for 2026 will be slightly higher than 2025, as follows:
RELATED: Should I pay down my mortgage early to eliminate PMI?
3. Deducting more state and local taxes (SALT).
Homeowners must pay various property taxes based on their home state, county, and city. The average SALT varies significantly depending on where you live. For instance, it’s approximately $4,700 in Alabama and nearly $15,000 in the District of Columbia.
But the good news is that these taxes are deductible up to a limit, which was significantly increased from $10,000 to $40,000 starting in the 2025 tax year. So if you live in a high-tax state, the higher SALT deduction alone could make itemizing worthwhile.
However, the SALT deduction isn’t allowable when you have income above $500,00 or $250,000 if you’re married and file taxes separately. So for high earners, the SALT deduction typically reverts to $10,000.
4. Claiming a home office.
If you’re self-employed on a part-time or full-time basis and work from home, you may qualify for the home office tax deduction. Note that the deduction is available for renters, too. You just have to use a space in your home or rental regularly and exclusively for business. But you're not eligible to claim a home office deduction if you work remotely as an employee who receives a W-2 from their employer.
To learn more and claim the deduction, you will use Form 8829, Expenses for Business Use of Your Home, and file it with Schedule C, Profit or Loss From Business.
5. Avoiding capital gains when you sell.
In addition to home-related tax deductions and credits, one of the most significant tax savings for homeowners happens when you sell your property. In general, selling an asset for a profit creates a taxable gain. However, many homeowners qualify for an exclusion and can keep some or all of their profit tax-free!
Here’s how it works: If you lived in the home for two of the previous five years before the sale, you qualify to exclude up to $250,000 (or $500,000 if you file taxes jointly with a spouse) So that's the amount of profit that you can exclude from taxation. This is a fantastic tax exemption. And it is available no matter your age, and you can use it as often as you sell a primary residence in your lifetime.
There are some situations where you don’t have to meet the five-year test, including being on official duty in the government, getting separated or divorced, and the death of a spouse. So speak with a certified tax professional if you have questions about the real estate capital gains tax exclusion.
You must complete Schedule D, Capital Gains and Losses, and Form 8949, Sales and Other Dispositions of Capital Assets, to report your home sale and avoid taxation.
READ ALSO: Selling your home–will you owe taxes?
6. Building equity.
So tax breaks are just the tip of the iceberg when it comes to building wealth as a homeowner. For many, the big benefit of real estate is building equity, which is the portion of your home that you own.
For instance, if your home’s market value is $450,000 and your mortgage balance is $250,000, you have the difference in equity. You have $200,000 in equity. Let's say in five years, if your home appreciates to $475,000, you’ll have at least $225,000 in equity.
Since every fixed-rate mortgage payment comprises a principal and an interest portion, you also build equity by paying off your loan. Each monthly payment automatically reduces your mortgage by a slightly larger amount. This process is known as amortization.
Therefore, every payment allows you to own more of your home and owe less. That's different from paying rent, which is a pure out-of-pocket expense.
Although real estate values can go up and down, over the long term, they have appreciated. If your home value goes up while your mortgage balance goes down, that's a powerful combination for building equity.
And once you got equity, homeowners can tap it through products like a home equity line of credit (HELOC), a home equity loan, or a cash-out refinance. Unlike selling an investment, borrowing against your home’s equity isn’t taxable. In fact, when you use that money to buy, build, or renovate your home, a portion of the interest you pay is tax-deductible.
RELATED: Pros and cons of a home equity line of credit (HELOC)
7. Hedging against inflation.
The cost of renting versus buying a home depends on where you live. For instance, buying a home in downtown New York City or San Francisco will be much more expensive than renting. Likewise, owning a home in many suburbs can be cheaper than renting a similar property in the same neighborhood.
However, one aspect of owning a home that’s often overlooked is getting protection from inflation. As a tenant, your landlord can typically raise rents as they like, squeezing you year after year.
But homeowners with a fixed-rate mortgage know their payment won’t change, no matter what happens in the economy. That makes owning a home more affordable when inflation rises.
Over the long run, owning an affordable home can be cheaper than renting, even when you factor in expenses such as a down payment, closing costs, property taxes, homeowners insurance, homeowners association fees, repairs, and maintenance. But of course this is going to depend on where you live.
LISTEN ALSO: 7 mortgage hacks to pay off your home early
8. Feeling stable.
Beyond the tax and equity financial perks, homeownership can offer emotional benefits. For instance, you avoid the worry and expense of a forced move if your landlord decides to sell the property, raises the rent significantly, or won’t make needed repairs.
If you’re in a good financial position and can put down roots in an area, such as by staying for at least 4 or 5 years, an affordable home mortgage can be one of the best ways to build pride, invest in a community, and create a sense of belonging with neighbors.
If you have a money question about real estate or anything else on your mind, leave a comment by calling 302-364-0308. You can find all this information in the show notes.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
Money Girl is a Quick and Dirty Tips podcast, and I want to thank our great team! Steve Riekeberg audio-engineers the show. Holly Hutchings is our director of podcasts, Morgan Christianson is our advertising operations specialist, Rebekah Sebastian is our marketing and publicity manager, Nathaniel Hoopes is our marketing contractor. And a special welcome to Maram Elnagheeb, our new podcast associate.