We develop a lifecycle portfolio-choice model of homeowners facing uninsurable income risk to show that tax deductions for mortgage interest payments and voluntary pension contributions have sizable effects on household portfolios and macroprudential risks. We calibrate the model to Germany and show that more generous deductions significantly reduce the effective cost of holding debt and increase the after-tax return of pension savings. As a result, mortgage incidence increases and portfolios shift from home equity and liquid assets towards pension savings. Households’ consumption becomes less sensitive to income shocks, although indebtedness and portfolio illiquidity increase. Conditional on portfolio positions, more generous deductions improve the resilience of mortgagors’ consumption to a house price bust but reduce it for most outright owners. Because more generous deductions induce agents to hold more debt, however, highly leveraged mortgagors end up more exposed to a house price decline. Our results suggest that the analyzed tax deductions can serve as a macroprudential policy instrument to stabilize homeowners’ consumption in the immediate aftermath of an adverse aggregate shock.