New Mortgage Interest Rules Offer Opportunities for Individual Taxpayers

How the OBBB Act Changes Mortgage Interest Deductions

The rules for deducting mortgage interest have shifted in ways that may prompt many individual taxpayers to rethink their year-end tax planning. The newly enacted One Big Beautiful Bill (OBBB) Act locks in a key limit on acquisition debt, adds a deduction for private mortgage insurance beginning in 2026, and preserves the ability for certain home equity debt to qualify when used for specific home-related purposes.

For homeowners, the combination of these changes and a higher state and local tax (SALT) cap starting in 2025 could make itemizing deductions more appealing again. With a bit of foresight, taxpayers may find new room to maneuver, opening doors that had been closed since the Tax Cuts and Jobs Act narrowed the deduction in 2018.

Mortgage Interest Rules Shift for Individual Taxpayers

Before the Tax Cuts and Jobs Act (TCJA) was signed in 2017, joint filers could deduct interest on up to $1 million in acquisition debt secured by the taxpayer’s residence—the amount borrowed to buy, build, or substantially improve a qualified residence—plus interest on an additional $100,000 in home equity indebtedness regardless of how those funds were used. The TCJA lowered the acquisition debt limit to $750,000 for mortgages taken after December 15, 2017, while older mortgages retained the higher cap. It also restricted home equity interest deductions to loans secured by a qualified residence and used to buy, build, or substantially improve the residence.

The OBBB Act makes the $750,000 limit permanent and, starting in 2026, treats certain private mortgage insurance as deductible interest. The home equity rules remain: interest is deductible only if the loan proceeds are used to buy, build, or substantially improve a qualified residence.

The legislation also raises the state and local tax (SALT) cap from $10,000 to $40,000 for married couples filing jointly beginning in 2025 and continuing through 2029. With the standard deduction for joint filers set at $31,500 in 2025, the higher SALT cap could encourage more taxpayers to itemize—especially those with significant mortgage interest and property taxes.

Actions to Consider Before Year-End

Homeowners may want to take stock of their mortgage balances, property tax payments, and overall deductions as the new rules approach. Those holding older mortgages should confirm which limit applies to them, while anyone considering refinancing or purchasing a second home will want to understand how acquisition debt is calculated. Coordinating with a tax professional now can help clarify whether itemizing will be advantageous in 2025 and beyond. Early planning means more room to adjust strategies before filing season begins.

How We Help

Every major life change—including purchase or sale of a property—can have tax implications that affect your short- and long-term financial plan. AAFCPAs and AAF Wealth Management offer holistic tax planning and wealth management solutions designed for individuals and families with complex financial needs. We work closely with clients, coordinating with wealth managers and in-house consulting tax attorneys to develop personalized strategies that minimize tax liability and preserve wealth for future generations.

Our team helps clients navigate changing tax laws, optimize deductions, and plan for short- and long-term financial goals. From managing mortgage interest deductibility to advising on estate and business succession planning, AAFCPAs provides practical guidance to support confident, informed decisions.

These insights were contributed by Greta Whelan, CPA, MST, Director, Tax.

Questions? Reach out to our author directly or your AAFCPAs partner.

AAFCPAs offers a wealth of resources on individual, family, and fiduciary tax strategies. Subscribe to get alerts and insights in your inbox.