Homeowner Tax Deductions in Texas: What Dallas Buyers and Owners Can Write Off in 2026

What tax deductions are available to homeowners in Texas in 2026?

Texas homeowners can deduct mortgage interest on loans up to $750,000, state and local taxes up to the new $40,000 cap under the One Big Beautiful Bill Act, and restored PMI for qualifying income levels. Capital gains exclusions of up to $500,000 for married couples apply when you sell. With DFW property taxes running 1.8% to 2.5%, many Dallas homeowners clear the standard deduction threshold simply by owning.

By Paul Blair | September 20, 2026

People talk about Texas like the whole financial case for ownership rests on no state income tax. That's true, and it matters. But the federal side of the ledger changed significantly in 2026, and the updates work in your favor if you own a home in Dallas, Plano, Frisco, or anywhere else in the DFW market.

Here's what's actually deductible now, what expired, and how to think about whether itemizing makes sense for your situation.

The Biggest Change: Your Property Tax Deduction Just Got Four Times Larger

For years, the SALT cap, the combined federal limit on deducting state and local taxes, sat at $10,000. For Texas homeowners with no state income tax, that entire cap went toward property taxes. On a $650,000 home in Collin County with a 1.9% effective rate, you're already at $12,350 in property taxes. The old cap meant you were leaving more than $2,000 on the table every year.

The One Big Beautiful Bill Act changed that. For tax years 2025 through 2029, the SALT cap is $40,000 for married couples filing jointly and $20,000 for single filers. That's enough room to cover the full property tax bill on most homes in the DFW market, including the higher-taxed MUD communities in Frisco, Prosper, and The Colony.

One important detail: the cap reverts to $10,000 in 2030 unless Congress acts again. If you're buying now, you have five years of full deductibility before that question comes back around.

For Collin County buyers, the 2026 property tax breakdown for DFW buyers covers rates by city, MUD overlays, and what to expect when that first assessed value notice arrives.

Mortgage Interest: Still the Largest Single Deduction for Most Owners

The mortgage interest deduction is unchanged in 2026. You can deduct interest on up to $750,000 in home loan balance for a primary or secondary residence. If your mortgage dates to before December 15, 2017, the grandfathered limit is $1 million.

On a $520,000 loan at 6.5%, your year-one interest payment runs roughly $33,800. That number decreases slightly each year as you pay down principal, but in the early years of a typical DFW mortgage, mortgage interest is the single largest driver of your itemized deductions.

One thing worth knowing: discount points paid at closing are generally deductible as prepaid interest in the year you buy. If you're weighing whether to buy down your rate, the mortgage points guide for DFW buyers walks through when that math makes sense.

If you're running the numbers on buying in Dallas or the suburbs this year, I can walk you through the full cost picture, including what your property tax bill is likely to look like and how it affects your deductions. Reach out at greysq.com/contact.

PMI Is Deductible Again

Private mortgage insurance, the premium you pay when your down payment is below 20%, was deductible at the federal level until the end of 2021, then quietly expired. The One Big Beautiful Bill Act restored it.

If you're currently paying PMI, you may now be able to deduct those premiums on your federal return. On a $520,000 loan with a 0.5% PMI rate, that's roughly $2,600 per year. Income limits apply and phase out at higher earnings, so confirm the exact cutoffs with your CPA before you file.

If your goal is to drop PMI as quickly as possible, reaching 20% equity in your home is the trigger. With DFW home values holding at or above their 2022 levels in most submarkets, some buyers who put 10% down in 2023 and 2024 are already close to that threshold.

HELOC Interest: Deductible, With One Condition

Home equity line of credit interest is deductible if, and only if, the proceeds were used to buy, build, or substantially improve the home securing the debt. Money spent on a kitchen renovation qualifies. Money pulled out to pay off a car loan does not. The IRS looks at how the funds were actually used, not just the form of the loan.

The combined limit across your primary mortgage and any HELOC is $750,000. On most DFW homes, your property tax and mortgage interest will drive your itemized deductions well before a HELOC becomes a major factor, but it's worth knowing if you have improvement projects planned.

Should you itemize? Quick math for a DFW buyer on a $650,000 home

On a typical DFW mortgage at current prices, the math favors itemizing by a wide margin, especially in the early years when your interest payment is highest.

The Capital Gains Exclusion: What Sellers Get to Keep Tax-Free

When you sell your primary residence, you can exclude up to $500,000 in gain from capital gains tax if you're married filing jointly, or $250,000 if you're single. To qualify, you need to have owned and lived in the home as your primary residence for at least two of the last five years.

With DFW home values up substantially from 2019 and 2020 entry points, sellers who bought during that window may be sitting on gains that approach or exceed the exclusion limit. Knowing your cost basis, which includes your purchase price plus capital improvements you've made over the years, matters a lot for that calculation.

The capital gains and home sale guide for Texas sellers covers the full Section 121 exclusion rules, how to calculate your adjusted basis, and what happens when your gain runs over the limit.

If you're thinking about selling and want to understand how your cost basis, improvements, and exclusion work together, I run those numbers with every seller I work with before we set a price. You can get a current estimate of your home's value at greysq.com/home-value.

What Expired at the End of 2025

Two federal energy tax credits did not survive the One Big Beautiful Bill Act's final text.

The Residential Clean Energy Credit (Section 25D), which covered solar panels and battery storage at 30%, expired December 31, 2025. The Energy Efficient Home Improvement Credit (Section 25C), which covered insulation, windows, doors, and qualifying HVAC upgrades, expired the same day.

If you were planning to install solar or replace an aging HVAC system with a federal credit in mind, that credit is gone at the federal level. Texas still offers a property tax exemption for renewable energy installations, and some utilities continue to run their own rebate programs, so the economics aren't completely different. But the 30% federal credit is no longer part of the calculation.

Whether to Itemize Comes Down to Your Loan Size and Property Tax Rate

Most Texas homeowners with a mortgage above $350,000 will find that itemizing beats the standard deduction, particularly in the first several years of the loan. The break-even point depends on your loan size, your effective property tax rate, and whether you're paying PMI.

One factor that's specific to Texas: because there's no state income tax, your entire SALT deduction goes toward property taxes. That gives the new $40,000 cap more room to work compared to states where homeowners split the cap between income taxes and property taxes. In California or New York, even the $40,000 cap doesn't go as far as it does here.

The Texas homestead exemption reduces your taxable assessed value, which directly lowers your annual property tax bill. Filing it correctly, in the year you buy, is one of the first financial steps to take after closing.

Whether you're buying your first home in Frisco or Plano, refinancing in Richardson, or preparing to sell in McKinney after a decade of ownership, the tax picture matters. Getting clarity on what you can deduct, and when, is part of making a sound financial decision. If you'd like to talk through the numbers for your specific situation, reach out at greysq.com/contact.

Frequently Asked Questions

Can Texas homeowners deduct property taxes on their federal return?

Yes. Because Texas has no state income tax, your entire SALT deduction goes toward your property tax bill. In 2026, the combined SALT cap is $40,000 for married couples filing jointly and $20,000 for single filers under the One Big Beautiful Bill Act. That covers the full property tax bill for most DFW homeowners, though homes in higher-rate MUD communities in Frisco, Prosper, and The Colony may push closer to that cap.

What is the SALT cap in 2026 and how does it affect DFW homeowners?

The SALT cap is now $40,000 for married couples and $20,000 for single filers for tax years 2025 through 2029, raised from $10,000 under the One Big Beautiful Bill Act. It reverts to $10,000 in 2030. Since Texas has no state income tax, the full cap applies to your property taxes, which run roughly 1.7% to 2.5% of assessed value across the DFW market. Most DFW homeowners will now be able to deduct their full property tax bill for the first time since the 2018 tax changes took effect.

Is mortgage interest still deductible in 2026?

Yes. You can deduct interest on loans up to $750,000 for a primary or secondary residence. Loans originated before December 15, 2017 are grandfathered at the $1 million limit. Interest is deductible in the year it's paid, so year-one deductions are highest and decline gradually as you pay down principal. Discount points paid at closing are also generally deductible as prepaid interest in the year of purchase.

Is PMI tax-deductible in 2026?

Yes. The One Big Beautiful Bill Act restored the PMI deduction, which had expired at the end of 2021. Income restrictions apply and phase out for higher earners; confirm the specific thresholds with your tax advisor before filing. If you're currently paying PMI, it's worth including in your itemized deductions going forward.

What happens if my capital gain on a home sale exceeds the exclusion?

The portion of your gain above $250,000 (single) or $500,000 (married) is taxable as a long-term capital gain if you owned the home for more than a year. Texas has no state capital gains tax, so only the federal rate applies. For most long-term Dallas homeowners, the exclusion covers the full gain, but buyers who purchased in 2019 or 2020 and have seen substantial appreciation should calculate their adjusted basis before listing.

How do I find a real estate broker who understands the financial side of buying or selling in Dallas?

A CPA handles your tax return, but a knowledgeable broker can help you understand how your purchase price, loan structure, and property tax rate affect your total cost of ownership before you're under contract. I work with buyers and sellers across Dallas, Plano, Frisco, and the northern suburbs, and I walk through this math with every client early in the process. You can reach me at greysq.com/contact.

About Paul Blair

Paul Blair is the founder and broker of Grey Square, a virtual real estate brokerage representing buyers and sellers across Dallas and Los Angeles. With 22 years in the business and more than $200 million in closed transactions, Paul works the full range of the market, from luxury homes in the Park Cities and Preston Hollow to estates in the Hollywood Hills and across the Westside. Connect with Paul and the Grey Square team at greysq.com. TX TREC #9011505 · CA DRE #01792671.