New Mortgage Interest Deduction Rules You Need to Know

If you currently own a home or plan to buy one soon, the One Big Beautiful Bill Act (OBBBA) is set to shake up a few important parts of homeownership tax benefits. One of the biggest areas getting attention is the mortgage interest deduction. These changes officially kick in starting in 2026, and while that might sound far off, understanding them now can help you make smarter financial and real estate decisions moving forward.

The Permanent Cap on Mortgage Interest

Under the OBBBA, the deduction for mortgage interest is being permanently capped at $750,000 of acquisition debt (or $375,000 if you’re married filing separately).

This means that if your mortgage loan amount exceeds those limits, any interest paid on the portion above the cap won’t be deductible.

For most homeowners across the U.S., this probably won’t change much but for those living in high-cost housing markets like California, New York, or major metropolitan areas, this cap could significantly reduce how much interest you can write off at tax time. It’s especially worth paying attention to if you’re planning to buy or refinance a home in those areas, since larger loan balances are more common there.

What About Home Equity Loans?

Good news: you can still deduct interest on home equity loans but there’s an important condition. To qualify, the funds from the loan must be used to substantially improve your home that means projects like kitchen remodels, room additions, or energy-efficient upgrades count, but using that money for debt consolidation, vacations, or tuition won’t qualify.

And remember, this interest still has to fit within the overall $750,000 cap when combined with your primary mortgage debt.

Mortgage Insurance Premiums (MIP) Are Coming Back

Starting in 2026, you’ll once again be able to deduct mortgage insurance premiums (MIP) a benefit that had previously expired.

However, this deduction comes with income-based limits:

Full deduction if your adjusted gross income (AGI) is below $100,000 for joint filers (or $50,000 if you’re filing separately).
The deduction phases out quickly as your income rises above those thresholds.

For many middle-income homeowners, this change could provide meaningful tax savings. But if your income is on the higher side, you may not see much benefit.

What If You Have an Older Mortgage?

If your mortgage originated before December 16, 2017, you’re in luck, you’re grandfathered in under the old rules. That means you can still deduct interest on up to $1 million of acquisition debt.

This “legacy” cap could save long-time homeowners thousands of dollars in additional deductions over the life of their loan, especially if they locked in during a time when home prices and mortgage sizes were lower.

What It All Means for You

In short, the OBBBA:

Makes the $750,000 mortgage interest cap permanent.
Reintroduces mortgage insurance deductions (with income limits).
Keeps special grandfathered rules for older loans.

If you’re planning to buy a new home, refinance an existing loan, or take out a home equity line for renovations, these new limits should be part of your tax and financial planning conversations.

The earlier you understand how these updates affect your personal situation, the easier it’ll be to make confident, informed decisions about your next move in homeownership.