Homeowners who have routinely claimed the standard deduction may want to reconsider their tax strategy this year. The recently enacted One Big Beautiful Bill Act introduced significant changes to homeowner tax deductions that could make itemizing deductions more advantageous for millions of Americans. The law permanently extends the mortgage interest deduction cap, reinstates the mortgage insurance premium deduction, and substantially increases the state and local tax deduction limit.
According to Faith Bynum, a certified public accountant in Raleigh, North Carolina, these combined factors create new “tipping points” that could push more homeowners over the threshold where itemizing makes financial sense. The changes particularly benefit those who carry mortgage insurance or live in states with high property taxes.
Mortgage Interest Deduction Remains Capped at $750,000
The new legislation makes permanent the $750,000 mortgage amount limit eligible for the mortgage interest deduction, which was originally introduced in the 2017 Tax Cuts and Jobs Act. Previously, homeowners could deduct interest on mortgages up to $1 million. The deduction applies to interest paid on both primary and secondary homes.
However, homeowners must itemize rather than claim the standard deduction to benefit from this tax break. For joint filers in 2025, the standard deduction stands at $31,500, which means the mortgage interest alone may not justify itemizing for many households.
Recent Homebuyers May Benefit Most
Homeowners who purchased properties in recent years face higher mortgage rates, which have averaged around 6.69% over the past two years, according to Freddie Mac data. Additionally, mortgage payments in the early years consist primarily of interest rather than principal. For example, a couple who bought a $400,000 home in early 2025 at a 6.5% interest rate would have paid nearly $20,000 in interest last year.
Meanwhile, when combined with other itemized deductions such as charitable contributions and unreimbursed medical expenses, the total could exceed the standard deduction threshold. This calculation becomes even more favorable when mortgage insurance premiums and state and local taxes are factored into the equation.
Mortgage Insurance Premiums Now Deductible Again
The One Big Beautiful Bill Act reinstates the deduction for mortgage insurance premiums, which had been available between 2007 and 2021 but subsequently expired. Most homeowners who put down less than 20% on their homes pay mortgage insurance until they reach 20% equity, with some government-insured loans requiring it for the life of the mortgage.
According to U.S. Mortgage Insurers, approximately 4 million homeowners claimed this deduction annually when it was previously available, averaging $1,454 per taxpayer. Premiums typically range from 0.2% to 2% of the mortgage amount annually, meaning a $300,000 mortgage could generate between $600 and $6,000 in annual premiums that are now deductible.
SALT Deduction Cap Quadruples to $40,000
Perhaps the most substantial change for homeowners in high-tax states is the expansion of the state and local tax deduction from $10,000 to $40,000. The SALT deduction allows taxpayers to deduct various non-federal taxes, including state and local income taxes, property taxes, and local vehicle taxes.
Additionally, the Tax Foundation identified California, New York, and Connecticut as states where homeowners are likely to benefit most, as combined state income and property taxes often exceeded the previous $10,000 cap. The Committee for a Responsible Federal Budget indicates that families earning between $400,000 and $500,000 will likely see the largest relative reductions in their federal tax bills, though the deduction phases out at $500,000 in income.
Evaluating Your Individual Situation
In contrast to previous years, the calculation now requires more careful consideration of multiple factors. Bynum noted that while many people still benefit from the permanently extended standard deduction, homeowners should evaluate their specific circumstances. For instance, a homeowner who paid $20,000 in mortgage interest and another $4,000 in mortgage insurance premiums at 1% of their loan amount could easily surpass the standard deduction when property taxes in high-tax states are included.
Taxpayers filing their 2025 returns should consult with tax professionals to determine whether itemizing deductions yields greater savings than the standard deduction. According to Bynum, this is particularly important this year given the scope of changes affecting homeowner tax benefits.
