Have a Mortgage? How Trump's New Tax Law Could Unlock Deductions for Homeowners

Have a Mortgage? How Trump's New Tax Law Could Unlock Deductions for Homeowners

In July 2025, President Donald Trump signed the "One Big Beautiful Bill Act," a comprehensive tax reform package that extends and modifies several provisions from the 2017 Tax Cuts and Jobs Act (TCJA). While the bill makes many TCJA elements permanent, it introduces or reinstates specific benefits that could provide new tax deductions for homeowners with mortgages. These changes are particularly relevant for those paying mortgage insurance, facing high state and local taxes, or deducting home interest. However, the advantages depend on your income, location, and whether itemizing deductions makes sense over the standard deduction. Below, I'll break down the key updates, eligibility, limits, and potential impacts based on recent analyses.

1. Reinstated Dedication for Mortgage Insurance Premiums (PMI)

One of the most direct "new" benefits for mortgaged homeowners is the permanent reinstatement of the deduction for mortgage insurance premiums, which had expired after 2021.

This treats PMI as deductible interest, potentially saving thousands on your tax bill.

• How It Works: If you pay PMI—often required for conventional loans with less than a 20% down payment, or FHA/VA/USDA loans—you can now deduct these premiums on your itemized return. This includes private mortgage insurance, FHA upfront and annual premiums, VA funding, and USDA guarantee fees.

• Eligibility: Available to homeowners who itemize deductions and have qualifying mortgage insurance. It's most beneficial for recent buyers or those in government-backed loans, where PMI can last for years or the life of the loan.

• Limits: Full deductibility for adjusted gross income (AGI) below $100,000 ($50,000 for married filing separately), with a phaseout for higher incomes. Premiums typically range from 0.2% to 2% of the loan amount annually (e.g., $600–$6,000 on a $300,000 mortgage).

• 
  The average deduction in 2021 (the last available year) was $2,364.

• Potential Savings: A family with a $400,000 mortgage paying $2,000 in annual PMI could reduce taxable income by that amount, saving $440–$740, depending on your tax bracket (22–37%).

• Impact on Itemizing: This deduction, combined with others, may push more homeowners to itemize rather than take the standard deduction ($15,750 single/$31,500 joint in 2025), especially if your total deductions exceed these thresholds.

2. Permanent Lock-In of Mortgage Interest Deduction Limits

The bill makes the $750,000 cap on deductible mortgage debt for interest payments permanent, preventing a scheduled reversion to the pre-TCJA $1 million limit after 2025.

 While not a "new" deduction, this extension provides certainty for homeowners planning long-term.

• How It Works: You can deduct interest on up to $750,000 of mortgage debt ($375,000 for single filers) used to buy, build, or improve a primary or secondary home.

• Eligibility: Applies to all homeowners who itemize; no income limits.

• Limits: The cap is not inflation-adjusted and effectively tightens over time. For homes bought with 20% down, this limits deductions on purchases above about $937,500.
  Interest on home equity lines of credit (HELOCs) is only deductible if used for home improvements.

• Potential Savings: With mortgage rates averaging 6.69% recently, a $750,000 loan could yield $50,000+ in annual interest, fully deductible if within limits—saving up to $18,500 in taxes at the 37% bracket.

• Impact on Itemizing: Higher rates make interest payments larger, increasing the value of itemizing, but the bill's raised standard deduction may still deter some from doing so.

3. Increased State and Local Tax (SALT) Deduction Cap

The SALT deduction—covering property taxes, state income taxes, and sales taxes—gets a temporary boost, indirectly benefiting mortgaged homeowners in high-tax states by allowing more property tax deductions.

• How It Works: The cap rises from $10,000 to $40,000 per household for tax years 2025–2029 (reverting in 2030).

• Eligibility: Available to itemizers; phaseout begins at $500,000 AGI in 2025.

• Limits: This applies to combined state/local taxes; many high-tax areas (e.g., California, New York) exceed the old cap, so the increase could add $30,000 in deductions.

• Potential Savings: For a homeowner paying $15,000 in property taxes, the full amount is now deductible (vs. just $10,000 before), saving $1,100–$1,850 at 22–37% brackets.

• Impact on Itemizing: This quadrupling makes itemizing far more appealing for middle- and upper-middle-class homeowners in high-tax states, especially when bundled with mortgage interest and PMI.

Other Relevant Homeowner Benefits

• Expanded Low-Income Housing Tax Credits: While not directly for individual mortgaged homeowners, the bill boosts credits for builders creating affordable rentals, potentially increasing housing supply and stabilizing markets over time (aiming for 1+ million units by 2035).

• Permanent Opportunity Zones: Tax incentives for investing in low-income areas could indirectly support home values and development.

• Senior Dedication Boost: An extra $1,000–$6,000 standard deduction for those 65+ (2025–2028) might reduce the need to itemize for older homeowners. However, mortgaged seniors could benefit from the above if itemizing yields more.

Should You Itemize? Key Considerations

Since 2018, only about 10–12% of taxpayers itemize due to the doubled standard deduction. However, reinstated PMI, locked-in mortgage interest, and a $40,000 SALT cap—plus high rates boosting interest payments—could make itemizing worthwhile for 20–30% more homeowners, especially recent buyers or those in high-cost areas.

 Run the numbers: If your total deductions (mortgage interest + PMI + property taxes + charitable gifts, etc.) exceed $15,750 (single) or $31,500 (joint), itemize for savings.

These provisions take effect for the 2025 tax year (filed in 2026). Consult a tax professional or use IRS tools to assess your situation, as rules can be complex and vary by state. While beneficial for many, critics note the bill favors higher-income itemizers and doesn't address broader affordability issues like rising home prices.

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