These changes will have a direct effect on existing homeowners nationwide. This legislation makes permanent the current $750,000 limit on deductible mortgage debt. This change has the potential to be enormously devastating, particularly in states that are high-tax like New York, New Jersey and California.
The new law imposes a $750,000 limit on acquisition debt. This cap only applies to purchase money loans, used to purchase, construct, or substantially rehabilitate a principal or second home. For individual taxpayers filing as single, the limit is $375,000. Before this provision, the limit on the mortgage interest deduction was $1 million. The old cap would have rolled back to the $1 million level in 2025. Unfortunately, Trump’s signature infrastructure legislation has made the $750,000 limit permanent.
The potential impact of this change couldn’t be more relevant today for many homeowners, especially those who reside in states with higher property taxes. In these areas, SALT often goes well above the prior $10,000 cap. These issues create a difficult environment for homeowners to maximize their deductions. As a consequence, millions of Americans would be able to save thousands of dollars. This is due in part to changes to the state and local tax deductions, and second, the return of the mortgage insurance premiums deduction.
The itemized deduction for mortgage insurance premiums expired after the 2021 tax year. As of now, it’s back in stone – permanently reinstated! Almost 4 million taxpayers claimed this deduction in 2017, the last year it was available. These filers enjoyed a massive average deduction amount of $1,454. This announcement would be a real boon to the millions of American families who shun banking for private mortgage insurance payment as a viable alternative home ownership.
These implementation changes will cause many homeowners to find that their total itemized deductions are more than the standard deduction. By doing so, itemizing may become a more appealing option for them. Financial experts such as line item deduction tax Keegan insist that homeowners be on watch for their own deductions. That means managing their medical costs and mortgage interest to fully realize the tax benefits of each.