One of the key tax benefits of homeownership is the mortgage interest deduction. When you make your monthly mortgage payment, part of it goes toward interest charged by your lender. If you itemize deductions on your federal tax return, you may be able to deduct that interest, reducing your taxable income.
To learn more, you can dive deeper into the breakdown of how mortgage interest deductions work and when itemizing makes sense.
The tax landscape for homeowners is changing in 2025–2026. New provisions from the One Big Beautiful Bill Act (OBBBA) and the IRS inflation adjustments affect several key deductions, including mortgage interest, property taxes, Private Mortgage Insurance, and standard deductions.
If you own a home or plan to buy one, understanding these changes could help you maximize tax savings and avoid surprises at filing time.
Here are the most important tax updates homeowners should know.
SALT Deduction Cap Increases to $40,000
One of the biggest changes is the increase in the State and Local Tax (SALT) deduction cap.
Previous cap: $10,000
New cap: $40,000 (tax years 2025–2029)
This deduction includes:
- Property taxes
- State income taxes
- State or local sales taxes
The higher limit could allow many homeowners—especially those in high-tax states—to deduct significantly more on their federal returns.
Mortgage Interest Deduction Limit Is Now Permanent
The OBBBA permanently sets the mortgage interest deduction limit at $750,000 for loans taken out after December 15, 2017.
Homeowners who purchased before that date still qualify for the grandfathered $1 million limit.
This change provides long-term stability for buyers, homeowners, and investors planning future purchases or refinances.
PMI Becomes Tax-Deductible Again in 2026
Beginning in tax year 2026, mortgage insurance premiums will once again be deductible.
This includes:
- Conventional PMI (Private Mortgage Insurance)
- FHA Mortgage Insurance Premiums
- VA Funding Fees
- USDA Guarantee Fees
In previous years, when this deduction was in effect, homeowners saved an average of about $2,300 annually.
Solar and Home Battery Tax Credits Expire After 2025
The 30% federal residential clean energy credit for solar panels and home battery systems expired December 31, 2025.
Unless new legislation restores it, homeowners installing solar panels in 2026 and beyond will no longer qualify for the federal credit.
Higher Standard Deduction May Reduce Itemizing
Due to inflation adjustments, the 2026 standard deduction increases:
- Married filing jointly: $32,200
- Single filers: $16,100
- Head of household: $24,150
Because the standard deduction is higher, fewer homeowners may benefit from itemizing deductions, including mortgage interest and property taxes.
Home Equity Loan Interest Still Has Limits
Interest on home equity loans and HELOCs remains deductible only if the funds are used to:
- Buy a home
- Build a home
- Substantially improve the property
If the funds are used for debt consolidation, personal expenses, or tuition, the interest is not deductible.
New Senior Homeowner Deduction Begins in 2026
Starting in tax year 2026, homeowners age 65 and older will qualify for an additional federal deduction designed to reduce tax burdens for seniors.
Estate and Gift Tax Limits Increase
The IRS also raised several estate planning thresholds for 2026:
- Federal estate tax exclusion: $15 million
- Annual gift tax exclusion: $19,000
- Gifts to non-U.S. citizen spouses: $194,000
These updates may impact homeowners who plan to transfer property or gift down payment funds to family members.
What These Tax Changes Mean for Homeowners
These updates could affect how homeowners plan their finances and file taxes.
Key takeaways include:
- The higher SALT deduction cap may make itemizing worthwhile again for some homeowners.
- The mortgage interest deduction limit is now permanent, creating long-term certainty.
- The return of the PMI deduction could provide meaningful savings for buyers with smaller down payments.
- The expiration of the solar tax credit may change the cost-benefit calculation for renewable upgrades.
- Seniors and high-net-worth families may have new planning opportunities.
Tax law changes in 2025–2026 create both new opportunities and new planning considerations for homeowners.
Whether you’re buying a home, refinancing, renovating, or preparing for next year’s tax return, it’s a good time to review your strategy and understand how these changes may impact your finances.
