How the One Big Beautiful Bill Act Affects Your Mortgage Interest Deduction

AVM DeMars
19 minutes ago
3 min read

Do You Qualify for Mortgage Interest Deductions Under the OBBB?

Whether you're a few months or several years into your mortgage payments, you're aware of how the interest you pay on that loan impacts your wallet each year. To help homeowners, the government used to allow you to deduct that interest on your taxes. But the looming expiration of that rule had many worried about losing those deductions and owing more each year.

Well, we're happy to say that the rule, along with a few additional benefits, is back and here to stay under the One Big Beautiful Bill (OBBB)! That means Long Island and Tri-State area property owners can significantly reduce their liability come tax season.

In this blog, we're breaking down:

How new OBBB provisions impact mortgage interest rate deductions
Who these changes impact
How you can combine deductions for lower tax liabilities

Can I Deduct Mortgage Interest Under the OBBB?

Now and forever more! The One Big Beautiful Bill Act has made deductions on mortgage interest, and how much you can deduct permanent. You can deduct interest up to:

$750,000, for most filers
$375,000, if you're married and filing jointly

When you consider that around 4 million homeowners took advantage of this deduction before it was made permanent, and qualified homeowners deducted around $1,450 each year, you can imagine the savings it will allow for as a fixed rule.

The law also reinstated a rule that allows homeowners to deduct the cost of certain insurance.

How does the OBBB Impact Private Mortgage Insurance?

If you purchase a house using a down payment that is less than 20% of the purchase price, some lenders will require you to take out private mortgage insurance (PMI) to ensure they still receive payment even if you fall behind on your own. When your PMI is associated with the acquisition debt you take on with your home, it is treated like mortgage interest.

New OBBB provisions allow you to deduct the annual cost of that insurance ($1,600-2,000 per year on average) from your taxes.

In even better news, you can combine these deductions to claim both mortgage interest and PMI costs for an even lower liability.

Can I Deduct Interest from Home Equity Loans?

Sorry, but no. The OBBB upheld the existing standard that home equity loans do not count as "qualified residence interest."

Any interest you're paying on loans that are borrowed against your home's value, even if they are used for personal expenses or debt consolidation, cannot be deducted from your taxes.

Who Qualifies for These Deductions?

Unfortunately, these mortgage interest deductions do not apply to everyone. For starters, they apply only to filers who use itemized deductions, not to those who use the standard deduction.

You can take advantage of these deductions if:

You pay for private mortgage insurance
Your mortgage balance is under $750,000
Your interest applies to a loan on a primary residence or a qualified second home

You cannot take advantage of this deduction if:

You've paid off your mortgage (you can't retroactively claim these deductions)
You're only paying interest on a home equity loan
Your mortgage balance is above $750,000
Your mortgage applies to non-qualified properties (rental or investment units)

Now, when Tri-State area and Long Island homes cost more than the $750,000 cap, you might be frustrated that you can't deduct more. However, there is a silver lining. You'll have to keep reading to find out what it is.

Can I Combine Deductions Under the OBBB?

You sure can! On top of these deductions on mortgage interest, you can also take advantage of SALT deductions that allow you to deduct what you pay in property taxes, up to $40,000.

Here's a scenario: You pay your mortgage each month, have an annual mortgage insurance premium of $2,000, and pay $20,000 in property taxes each year.

Under the OBBB provisions, you can deduct the interest, the total cost of your insurance, and the total cost of your property tax (as long as you make under $500,000) to significantly reduce your tax liability and potentially even get a refund.

When you start combining deductions, things can get complicated. That's why it's essential to have expert tax advisors helping you every step of the way.

Take Control of Tax Season with AVM DeMars

Our experienced Long Island and Tri-State area tax experts at AVM DeMars CPAs LLC specialize in identifying deductions and credits that many individuals overlook. Whether it's a property tax review, strategic tax planning, or year-end tax optimization, we'll help you keep more of what you've earned while staying fully compliant with federal and state regulations.