Why Federal Tax Refunds May Be Bigger Than Usual for Homeowners This Year

When homeowners file their 2025 tax returns in spring 2026, many can expect bigger federal refunds than usual.

The U.S. Treasury is projecting refunds will increase by an average of $1,000 per household, thanks to new and expanded tax breaks that took effect for tax year 2025.

The biggest change for homeowners? The SALT (state and local tax) deduction cap quadrupled from $10,000 to $40,000. But not all homeowners will benefit equally—and some may still be better off taking the standard deduction. Here's how to figure out whether you're in line for a larger refund.

What changed for taxpayers this year

The biggest tax change for homeowners filing their 2025 returns is the expanded SALT deduction. The SALT cap jumped from $10,000 to $40,000 for married couples filing jointly, or from $5,000 to $20,000 for those filing separately.

The SALT deduction allows homeowners who itemize to deduct property taxes plus either state and local income taxes or sales taxes from their federal taxable income. The Tax Cuts and Jobs Act capped this deduction at $10,000 in 2017. The One, Big, Beautiful Bill Act has now raised that cap significantly through 2029, when it reverts to $10,000.

Adding to refunds this year: The IRS didn't update withholding tables after the OBBBA passed, so employers continued taking out taxes based on the old rules throughout 2025. Workers overpaid all year and will receive the difference in one lump sum.

"A refund just means you paid more tax during the year than you actually had to," says Spencer Carroll, a certified public accountant and account executive at Gelt. "It's basically an interest-free loan that you gave the government for months to over a year."

The standard deduction also increased modestly for 2025, but the expanded SALT cap is the real game-changer for homeowners in states with high property and income taxes.

Is everyone getting an extra $1,000 this year?

Not exactly. The Treasury projects an average $1,000 increase in refunds per household, and that number is far from guaranteed. 

“Taxes are so individual, I would not be able to tell someone definitively that their refund is going to be $1,000 this year,” says Carroll. “The better headline is that people in general will pay less income tax, which is what everybody wants.”

Several changes contribute to this year’s lower tax bills: the modestly higher standard deduction (benefiting the 90% to 95% of taxpayers who don't itemize), the raised SALT cap for those who do itemize, and an increased child tax credit. How much you personally save depends on your specific situation.

Who benefits most from the expanded SALT cap?

For homeowners specifically, the expanded SALT deduction is the most significant change among the various tax changes, particularly for those in high-tax states.

"Homeowners in high-tax states like New York, New Jersey, and California are far more likely to see meaningful benefits from the SALT expansion than homeowners in lower-tax states," says Douglas Boneparth, a CFP and president of Bone Fide Wealth. "Higher-income households with large property tax bills and state income taxes stand to benefit the most, while middle-income homeowners may see a more modest bump or none at all."

Homeowners have a distinct advantage over renters when it comes to the SALT deduction. 

"The expanded SALT deduction benefits homeowners more than renters because homeowners typically pay property taxes in addition to state and local income taxes," Boneparth explains. Renters may indirectly pay property taxes through their rent, but they can't deduct those costs.

There's an important income limitation: The $40,000 cap begins phasing down once modified adjusted gross income exceeds $500,000 ($250,000 for married filing separately), eventually reverting to the old $10,000 cap for the highest earners. And to benefit at all, your total itemized deductions must exceed the standard deduction.

Doing the math on your impact

To understand the real-world impact, consider a homeowner in a high-tax state like New York paying $18,000 in combined property and state income taxes.

"Under the prior $10,000 SALT cap, $8,000 of those taxes provided no tax benefit," explains Boneparth. "If the expanded cap allows the full $18,000 to be deducted, that is an additional $8,000 deduction. For someone in the 24% federal tax bracket, that translates to roughly $1,900 in federal tax savings, which often shows up as a larger refund if withholding stayed the same."

That's nearly double the Treasury's projected $1,000 average refund increase—and homeowners paying even more in state and local taxes could see substantially larger refunds. Those in the wealthiest, highest-taxed areas hitting closer to the new $40,000 cap could see refunds several thousand dollars higher than the national average.

Should prospective buyers factor in tax breaks?

For people considering buying their first home, tax deductions can sound like a compelling financial incentive—but the math often doesn't work the way many assume.

"If I went and bought a home today—yes, I could maybe itemize and deduct my mortgage interest and property taxes, but I'm already getting a standard deduction no matter what," says Carroll. "I could live on the street, not pay rent, and I'd still get $31,000 as a standard deduction if I'm married. If you're single, it's around $15,000."

Here's the reality: If you and your partner buy a home and your itemized deductions total $35,000, you only benefit from the $4,000 difference above the standard deduction. "That $4,000 needs to be multiplied by your marginal tax rate. If it’s 20%, you're saving $800 on your income tax. That’s less than $100 a month," Carroll explains.

His bottom line: "You might have just doubled your monthly housing expenses by going from renter to homeowner to save $800 extra on your income taxes. People need to keep in mind it's just a marginal difference."

What homeowners need to know

The decision to itemize versus taking the standard deduction comes down to simple math: Add up your mortgage interest, charitable contributions, and allowable SALT deductions, then compare that total to the standard deduction ($31,500 for married couples, $15,750 for singles). If your itemized deductions exceed the standard deduction, itemizing makes sense. 

Keep all documentation for property tax payments and state income tax withholding, and consider talking to a CPA about whether you should adjust your withholding for 2026 to avoid another surprise refund. And remember that this provision is temporary, reverting to the $10,000 cap in 2029.

While the Treasury projects an average increased refund across all households, the reality for all of us, especially homeowners, varies dramatically. Those in high-tax states who were squeezed by the old $10,000 cap could see refunds several thousand dollars higher, while homeowners in lower-tax states may see little change at all.