Mortgage Interest and Insurance Deductions After OBBBA: Key Changes and Tax Planning Opportunities

Renee Tiun

Renee, a foreign-trained attorney at Basswood Counsel, specializes in taxation, corporate law, and estate matters, bringing over a decade of experience from Malaysia and a client-focused approach.

This is a follow-up to our previously published articles, where we introduced the major provisions of the OBBBA impacting individual taxpayers.

Mortgage Interest Deduction under OBBBA

The 2017 Tax Cuts and Jobs Act (TCJA) introduced a cap on the mortgage interest deduction, allowing taxpayers to deduct interest paid on up to $750,000 of acquisition indebtedness in Schedule A of Form 1040 — that is, loans used to buy, build, or improve a primary or secondary home. Interest paid on home equity loans used for non-housing purposes (such as paying off credit cards or funding vacations) is not deductible. Now, under the One Big Beautiful Bill Act (OBBBA), this $750,000 limit has been made permanent. For those married filing separately, the limit is $375,000. The home equity loans must be used for housing purposes in order for the interest payments to be deductible.

Deduction of Home Mortgage Insurance

The OBBBA has also expanded the deduction by allowing the deduction of qualified mortgage insurance payments, to be treated as qualified home mortgage interest. This is limited to premiums paid or accrued before January 1, 2022 and after December 31, 2025 for qualified mortgage insurance in connection with home acquisition indebtedness.

Qualified home mortgage under the OBBBA includes mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service and private mortgage insurance (PMI).

This deduction phases out by 10% for every $1,000 (or part thereof) that the taxpayer’s adjusted gross income (AGI) exceeds $100,000. For married individuals filing separately, the threshold and reduction applies at $50,000 and $500 increments respectively. However, this deduction cannot be reduced below zero.

The OBBBA introduces opportunities for homeowners and taxpayers—but taking full advantage requires strategic planning. Whether you’re navigating mortgage interest deductions, qualified insurance premiums, or income-based phaseouts, now is an opportune time for strategic tax planning with the new OBBBA provisions in mind.

This article is the ninth installment in our focused content series examining the One Big Beautiful Bill Act and its implications for individual taxpayers, estate planning, and businesses.

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