Buying a home in San Diego is expensive. That's not news. But what's worth paying attention to is how much of that cost can work in your favor come tax time. Homeownership unlocks a set of deductions and credits that can meaningfully reduce your annual tax bill — if you know they exist and if someone actually checks whether you qualify.

We see homeowners every year who've been taking the standard deduction on autopilot, not realizing that their mortgage interest, property taxes, and other homeowner-specific expenses would have put them over the itemizing threshold. In a market where median home prices hover near $900,000, the numbers add up fast.

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Mortgage Interest — The Biggest Deduction Most Homeowners Have

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If you carry a mortgage, you're paying interest. And that interest is deductible if you itemize. The cap is $750,000 in mortgage debt for loans originated after December 15, 2017. For loans taken out before that date, the limit is $1 million.

In the early years of a mortgage, the vast majority of your monthly payment goes toward interest. On a $700,000 loan at 6.5%, you're paying roughly $45,000 in interest in year one alone. That's a substantial deduction — more than enough on its own to justify itemizing for most San Diego homeowners.

Refinance interest is deductible too, subject to the same limits, as long as the new loan doesn't exceed the balance of the original plus refinancing costs. If you refinanced during the rate drops, your Form 1098 will show what you paid. Check it.

One detail people miss: mortgage points. If you paid discount points at closing to buy down your rate, those are generally deductible in the year of purchase — either all at once or amortized over the life of the loan, depending on the circumstances. Points paid on a refinance are typically deducted over the loan term. On a San Diego purchase, even a single point on a $700,000 loan is a $7,000 deduction. That's not something you want to overlook.

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Property Taxes and the SALT Cap

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San Diego County property tax rates typically run around 1.1% to 1.3% of assessed value when you include special assessments and Mello-Roos, depending on the area. On an assessed value of $800,000, that's $8,800 to $10,400 a year.

Here's where it gets frustrating. The State and Local Tax deduction — SALT — lets you deduct the combination of state income taxes (or sales taxes) and property taxes, but only up to $10,000 total. For many San Diego homeowners, property taxes alone approach or hit that cap, meaning a significant portion of your total state and local tax burden goes undeducted.

It's still worth claiming the full $10,000. But understand the limitation. If your property taxes are $9,500 and your California income tax is $12,000, you're only deducting $10,000 of a combined $21,500 burden. That's been the reality since the TCJA took effect in 2018.

A note on Proposition 13: California's Prop 13 limits annual assessed value increases to 2% per year, which means longtime homeowners may have assessed values far below market value. That's great for keeping your property tax bill manageable, but it also means your property tax deduction is smaller relative to the home's actual value. Newer buyers paying taxes based on a higher purchase price will have a larger deduction. It cuts both ways.

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Solar and Energy Credits — This Is San Diego's Biggest Advantage

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If there's one tax credit that makes more sense in San Diego than almost anywhere else in the country, it's the Residential Clean Energy Credit for solar installations. We get roughly 266 sunny days a year. Solar panels here aren't aspirational — they're practical. And the tax credit makes the economics even more compelling.

The federal credit is 30% of the total cost of a qualifying solar energy system, including installation. There is no cap on the credit amount. A $25,000 solar installation generates a $7,500 federal tax credit. A $40,000 system? That's $12,000 back. This credit applies to the year the system is placed in service, and if it exceeds your tax liability for that year, the unused portion carries forward.

Beyond solar, the Energy Efficient Home Improvement Credit covers qualifying upgrades like heat pumps, insulation, exterior windows and doors, and high-efficiency HVAC systems. This credit has annual limits — up to $3,200 per year depending on the type of improvement — but it resets annually, so you can spread upgrades across multiple years to maximize the benefit.

We see San Diego homeowners install solar and not claim the credit because they assumed it expired or didn't apply to them. It hasn't expired. It applies. Claim it.

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Home Office Deduction

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Remote and hybrid work arrangements are common here, and the home office deduction is available to anyone who uses a dedicated space in their home regularly and exclusively as their principal place of business. The key word is exclusively — a dining table that doubles as your workspace doesn't qualify. A converted spare bedroom that's only used for work does.

The simplified method is $5 per square foot, up to 300 square feet — a maximum of $1,500. The regular method calculates the actual expenses of the home (mortgage interest, property taxes, insurance, utilities, maintenance) proportionate to the percentage of the home used for business. In San Diego, where housing costs are well above national averages, the regular method frequently produces a larger deduction.

Important limitation: this deduction is available to self-employed individuals and certain business owners. W-2 employees working from home cannot claim it on their federal return — the TCJA eliminated the unreimbursed employee expense deduction for most employees through 2025. California does allow a limited version through Schedule CA, but the federal deduction is off the table for employees.

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Closing Costs and Purchase-Year Deductions

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If you bought your home during the tax year, your closing statement is worth a careful look. Beyond mortgage points, you may have prepaid property taxes or mortgage interest at closing. Those prepaid amounts are deductible in the year of purchase.

Transfer taxes, title insurance, and most other closing costs are not deductible — but they do get added to your cost basis, which matters when you eventually sell. Keeping accurate records of your closing costs now saves headaches years down the road when you're calculating your gain on sale and trying to determine whether you exceed the $250,000 ($500,000 for married) capital gains exclusion.

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Itemize vs. Standard — Check It Every Year

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The decision to itemize or take the standard deduction should be made annually, based on actual numbers — not habit. Your mortgage balance amortizes over time, meaning your interest deduction shrinks each year. But a large charitable donation, a spike in medical expenses, or a home improvement with a corresponding energy credit can push you back over the itemizing threshold in any given year.

We run both scenarios for every homeowner client. In a high-cost market like San Diego, the crossover point is often closer than people assume. A household with a $600,000 mortgage, $10,000 in property taxes, and $5,000 in charitable giving is right at the edge — and any of those variables shifting can change the answer.

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San Diego Tax Associates reviews every deduction and credit available to homeowners in this market. If you're not sure you're capturing everything, we'll run the numbers.

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