What specific changes did the 2025 tax law make to mortgage interest deduction limits?
Executive summary
The 2025 tax law made the Tax Cuts and Jobs Act (TCJA) reduction of the home acquisition indebtedness cap—$750,000 ($375,000 for married filing separately)—permanent, rather than allowing it to revert to the pre‑TCJA $1 million limit after 2025 (sources reporting this change include H&R Block, CNBC, Duane Morris, and bipartisan analysts) [1] [2] [3] [4]. The law also preserves grandfathering for mortgages originated before December 16, 2017 (or refinanced within certain rules), and restores or changes related homeowner provisions in ways that affect how and when mortgage interest or mortgage insurance premiums may be deducted [5] [6] [3].
1. What changed: the $750,000 ceiling is now permanent
Congress made the TCJA-era $750,000 acquisition indebtedness limit (and the $375,000 married‑separate threshold) a standing rule rather than a temporary one scheduled to expire at the end of 2025; multiple tax‑industry writeups and reporting describe the One Big Beautiful Bill Act (OBBBA) as locking in the lower cap permanently [2] [1] [3] [4].
2. What didn’t change: pre‑2017 loans retain older rules
Home acquisition debt taken out before December 16, 2017—and in many cases refinanced thereafter under strict balance‑and‑timing rules—continues to be treated under the prior $1 million ($500,000 married‑separate) ceiling for the portion grandfathered by the statute; practitioners warn the grandfathering applies only to loans meeting the timing and principal balance tests [5] [7].
3. Limits beyond the headline cap: home equity and use rules
The TCJA had already narrowed interest deductibility by restricting home equity loan interest unless the funds were used to buy, build, or substantially improve the home that secures the loan; the 2025 law keeps the reduced overall limit in place and maintains the policy that only qualifying uses make home‑equity interest deductible, per Congressional summaries and IRS guidance history [8] [7].
4. Interaction with itemizing and the standard deduction
The mortgage interest deduction remains an itemized deduction; the TCJA-era doubling of the standard deduction sharply reduced the share of taxpayers who itemize, and analysts note keeping the lower mortgage cap permanent continues that structural effect—fewer filers will find mortgage interest large enough to beat the higher standard deduction [9] [10].
5. Other homeowner provisions that affect value of the MID
The 2025 law bundled multiple homeowner changes: some firms and reporters note restoration of the mortgage insurance premium deduction (with phased timing), increases in standard deduction amounts, and changes to SALT caps that alter whether taxpayers itemize—these offsets change the practical value of mortgage interest deductibility even though the $750,000 cap is the headline change [3] [2] [1].
6. Who gains and who loses under the permanent $750,000 limit
Lower‑ and middle‑income homeowners who buy modest primary residences are largely unaffected; high‑balance borrowers in expensive housing markets lose the potential benefit that a $1 million cap would have allowed, while those with pre‑2017 mortgages and qualifying refinancings may retain the higher limit under grandfather rules [4] [5] [8].
7. Short‑term uncertainty that mattered during 2025 legislative debate
Prior to the law, analysts warned that if Congress did nothing the $750,000 cap could expire and revert to $1 million; industry outlets and policy shops framed the OBBBA’s permanence as providing certainty for mortgage markets and tax planning [11] [2] [10]. Alternative viewpoints in the record include proposals to reform or significantly narrow the MID further (including proposals to cap annual deductible interest at much lower dollar amounts), illustrating that permanence is a policy choice, not the only possible path [10].
8. Practical takeaways for taxpayers and advisors
Taxpayers should confirm whether their mortgage is grandfathered under the pre‑2017 rules before assuming a $1 million deduction ceiling; lenders’ Form 1098 reporting, IRS Publication 936 guidance, and practitioner alerts will determine how much interest can be reported and claimed for a given year [7] [6] [5]. Filers should also weigh the interplay with the standard deduction and revised SALT rules when deciding to itemize [9] [12].
Limitations and sourcing note: This summary relies on the available reporting and practitioner analyses assembled here—including IRS publications, major tax‑prep firms, industry press and policy briefs—and cites the specific sources for each factual point. Sources do not mention every implementation detail or IRS administrative guidance that may follow; “how to apply” questions for complex refinancing or mixed‑use loans require review of IRS Publication 936 and professional tax advice [7] [6].