The “One Big Beautiful Bill” (OBBB), signed into law on July 4, 2025, represents the most sweeping tax reform since the Tax Cuts and Jobs Act (TCJA). While the legislation spans hundreds of pages, individual taxpayers need to be aware of key changes regarding the home mortgage interest deduction that will impact them.

Background Discussion

The TCJA temporarily limited the home mortgage interest deduction to interest paid on the first $750K of home acquisition indebtedness ($375K for married taxpayers filing separately), starting in 2018. This meant that taxpayers needed to closely track the total amount of indebtedness on their homes. Over the years, as real estate prices increased, more taxpayers became subject to this cap. Situations involving second mortgages, other forms of home equity indebtedness (i.e., debt secured by the residence, but not taken on for the residence itself), and partial use of the residence for rental or business purposes created additional layers of complexity. Unlike many tax provisions, the $750K limit was not annually adjusted for inflation, but was scheduled to increase to $1M starting in 2026.

Summary of OBBB Changes

Under the OBBB, the limit is permanently set at $750K ($375K for married taxpayers filing separately). Significantly, there are no automatic annual inflation adjustments and no other scheduled increases to the limit. This means that as real estate prices continue to rise, more taxpayers will become impacted by this limit. Tracking the total amount of home mortgage indebtedness, as well as any mixed use of the residence for rental or business purposes, remains very important. While imposing this limit, the OBBB did “give back” something to homeowners – private mortgage insurance (PMI) premiums are treated as interest.

Taxpayers and tax preparers should take note of the following items:

• Ensure that all Forms 1098 (reporting mortgage interest paid) are received. This is especially important in situations where there may be a second mortgage or where the mortgage may have been transferred to another service provider or lender during the year.
• Know the outstanding balances on their mortgages on the first and last day of the year.
• Know what portions of their home, if any, are being used for rental or business purposes.
• Know for what purpose their home indebtedness was taken on (acquisition, home improvement, consolidation of other debts, etc.).
• Know how much, if any, PMI was paid during the year. This is often relevant for those who purchase a home with a down payment of less than 20%. This amount is often reported on Form 1098 (with mortgage interest).
• If a home was purchased or sold during the year, check the closing statements carefully for additional interest that may have been paid in connection with the closing.

Contact your YHB advisor today to discuss how these changes can impact you.