The impact of new tax laws on homeownership costs

Written by Samantha SheltonNMLS 1647301Updated October 2026

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified tax professional about your situation.

Homeowners reviewing paperwork at a dining table, illustrating how new tax laws affect homeownership costs and deductions

The One Big Beautiful Bill Act, signed into law July 4, 2025 as Public Law 119 to 21, raised the federal cap on the state and local tax (SALT) deduction from $10,000 to $40,000 for tax year 2025, and to $40,400 for 2026. The same law made the mortgage interest deduction’s $750,000 limit permanent instead of letting it expire at the end of 2025.¹

Two more changes hit homeowners directly: qualified mortgage insurance premiums count as deductible mortgage interest for tax years beginning after December 31, 2025, and both residential energy credits ended after 2025.

Learn what each change does to your bill, whether the higher SALT cap makes itemizing worth it, and what Michigan homeowners should check. If you’re earlier in the journey, start with our homeownership guide and our taxes and money hub.

Key takeaways:

The SALT cap quadrupled, temporarily: The state and local tax deduction limit rose from $10,000 to $40,000 for tax year 2025 and $40,400 for 2026, and applies only to years beginning in 2025 and ending before January 1, 2030.
Mortgage interest is permanent at $750,000: Interest on up to $750,000 of home acquisition debt taken after December 15, 2017 stays deductible with no sunset date, and $1 million of older grandfathered debt still qualifies.
Energy credits are gone after 2025: Solar and efficiency upgrades placed in service in 2026 or later earn no federal residential energy credit, so a project timed to beat that deadline no longer has one.

What changed for homeowners under the new tax law?

Four things changed, and three of them help: a bigger SALT cap, a permanent mortgage interest deduction, and deductible mortgage insurance. The fourth, the end of the residential energy credits, costs you. Everything else, including the capital gains exclusion and how your county assesses your property, works the way it did before.

Homeowner tax item	Prior rule	New rule	Effective years
SALT deduction cap	$10,000 ($5,000 if married filing separately)	$40,000 for 2025 ($20,000 if married filing separately), reduced above $500,000 of modified AGI; $40,400 for 2026 ($20,200 if married filing separately), reduced above $505,000 of modified AGI, never cut below $10,000 in either year	Years beginning in 2025 and ending before Jan. 1, 2030
Mortgage interest deduction limit	$750,000 of home acquisition debt, scheduled to expire after 2025	Same $750,000 limit ($375,000 if married filing separately), made permanent	Permanent
Grandfathered mortgage debt	$1 million for debt incurred Oct. 14, 1987 through Dec. 15, 2017	Unchanged	Permanent
Mortgage insurance premiums	Deduction expired, not claimable on a 2025 return	Qualified mortgage insurance premiums treated as deductible home mortgage interest	Tax years beginning after Dec. 31, 2025
Residential clean energy credit (solar and similar)	Available	No credit for expenditures made after Dec. 31, 2025	Ends after 2025
Energy efficient home improvement credit	Available	No credit for property placed in service after Dec. 31, 2025	Ends after 2025

One caveat runs through all of it: every deduction above is an itemized deduction. Take the standard deduction instead, $32,200 for joint filers in 2026, and the SALT and mortgage interest changes do nothing for you.

What changed in the SALT deduction?

The cap on deducting state and local taxes went from $10,000 to $40,000 for tax year 2025, and it rises to $40,400 for 2026 ($20,200 if you’re married filing separately). SALT is the combined bucket for your state and local income taxes (or sales taxes, if you choose those instead) plus your real property taxes. A homeowner with $9,000 in property taxes and $6,000 in state income tax used to deduct only $10,000 of that $15,000. Now the full amount fits. Three details decide whether that’s worth anything to you:

It’s temporary: The increase applies to calendar years that begin in 2025 and end before January 1, 2030, tax years 2025 through 2029. Plan around the window, not past it.
It phases down for high earners: The limit is reduced if your modified adjusted gross income exceeds $500,000 for 2025 or $505,000 for 2026 ($252,500 if you’re married filing separately in 2026), but is never cut below $10,000 ($5,000 if married filing separately).
You still have to itemize: SALT only appears on Schedule A. A bigger cap on a deduction you never claim is worth nothing, which is why the itemize question below matters more than the headline.

The cap applies to the federal deduction, not to what your county charges. Your actual bill is set by local assessments and millage rates on their own calendar.

Is mortgage interest still deductible?

Yes, and it no longer has an expiration date. The $750,000 limit on home acquisition debt was set by the 2017 tax law and was scheduled to sunset after 2025; the new law made it permanent. If you itemize, you can deduct interest on the first $750,000 of debt used to buy, build, or substantially improve your main or second home. Which limit applies depends on when you took the debt on, not when you file:

Debt incurred after December 15, 2017: The limit is $750,000 ($375,000 if married filing separately).
Debt incurred October 14, 1987 through December 15, 2017: The grandfathered limit is $1 million ($500,000 if married filing separately).
Home equity borrowing: No matter when the debt was incurred, interest is deductible only to the extent the proceeds bought, built, or substantially improved the home securing the loan. A HELOC that paid off credit cards does not qualify.

That last bullet is the one that catches people. The worksheets and refinancing rules live in IRS Publication 936 on the home mortgage interest deduction.

Can you deduct PMI now?

Starting with tax years that begin after December 31, 2025, yes. Qualified mortgage insurance premiums are treated as deductible home mortgage interest. That deduction had expired: the 2025 edition of the IRS’s own guidance told filers plainly they could no longer claim it. The new law brought it back for 2026 forward.

“Qualified mortgage insurance” is broader than the private mortgage insurance most conventional borrowers picture. It covers mortgage insurance under a contract issued after December 31, 2006 and provided by the Federal Housing Administration,² the Department of Veterans Affairs,³ or the Rural Housing Service, plus private mortgage insurance as defined by the Homeowners Protection Act of 1998. Two practical consequences follow:

Your servicer reports it: Lenders report qualified mortgage insurance premiums of $600 or more in Box 5 of Form 1098, mortgage by mortgage. Pay less than $600 on a loan and it may not appear at all, check your annual statement.
The 20%-down math changes at the margin: If avoiding PMI was the only reason you were stretching for a 20% down payment, the after-tax cost of a low-down-payment loan just got a little lower for itemizers. Buyers early in the process should also review first-time home buyer tax credits.

Because Align is a broker, we can run one borrower through conventional, FHA, VA, USDA, and jumbo pricing side by side and show what mortgage insurance costs on each.

Which energy credits are expiring?

Both main residential energy credits ended after 2025, and the cutoff is defined differently for each. The residential clean energy credit is not allowed for expenditures made after December 31, 2025. The energy efficient home improvement credit is not allowed for property placed in service after December 31, 2025.

That distinction matters if you signed a contract in late 2025. “Expenditures made” and “placed in service” are not the same test, so ask a tax professional whether a project that straddled year end still qualifies.

Going forward the math is simpler. Solar, heat pumps, insulation, and efficient HVAC still earn their keep on utility savings, comfort, and resale, but no federal credit rides along on a 2026 project. Improvements can also move your assessment, a separate question from your income tax; see how home improvements affect property taxes.

What did not change for homeowners?

The biggest homeowner tax break of all is untouched: the exclusion of gain on the sale of a main home. You may exclude up to $250,000 of capital gain, or up to $500,000 on a joint return. To qualify, you must meet both tests during the five-year period ending on the date of sale:

Ownership test: You owned the home for at least 24 months out of the last five years.
Use test: You lived in it as your main home for at least two years out of those same five years.
Joint returns: Either spouse can satisfy the ownership test, but both must individually meet the use test to claim the full $500,000.

The two periods don’t have to be the same 24 months. Both just have to land inside the five-year window. Exceptions, partial exclusions, and basis worksheets are in IRS Publication 523 on selling your home; our guide to capital gains tax exemptions covers common Michigan scenarios, and Nolo’s legal encyclopedia on homeownership and taxes covers the legal side.

Should you itemize or take the standard deduction?

Itemize only when your itemized deductions beat your standard deduction, $32,200 for a married couple filing jointly in 2026, $16,100 for a single filer, and $24,150 for a head of household. For 2025 returns those figures were $31,500, $15,750, and $23,625. That threshold, not the SALT cap, decides whether any of these changes reach your refund. Here’s how it plays out for two Michigan households, both married filing jointly in 2026.⁴

Household A, the typical case. A Waterford couple pays $9,000 in property taxes, $5,100 in Michigan income tax at the state’s flat 4.25% rate, $14,000 in mortgage interest, and gives $2,000 to charity.

Hypothetical example, not an offer. Actual rates, costs and payments vary.

Under the old $10,000 cap: SALT is limited to $10,000, so itemized deductions total $26,000, well under the $32,200 standard deduction.
Under the 2026 $40,400 cap: The full $14,100 of SALT counts, so itemized deductions total $30,100.
The verdict: Still take the standard deduction. The new cap closed the gap by $4,100 but left them $2,100 short of the crossover.

Household B, where the change bites. A couple with a larger home and higher income pays $16,000 in property taxes, $9,000 in Michigan income tax, and $21,000 in mortgage interest.

Under the old $10,000 cap: Itemized deductions total $31,000, just under the $32,200 standard deduction.
Under the 2026 $40,400 cap: The full $25,000 of SALT counts, and itemized deductions total $46,000.
The verdict: Itemize. That’s $13,800 more than the standard deduction, worth roughly $3,000 in federal tax at the 22% bracket, which for 2026 starts above $100,800 of taxable income for joint filers.

The honest summary: the SALT increase is a real benefit for a minority of homeowners and a headline for everyone else. Run your own numbers instead of assuming it reaches you, our taxes and money guides are a starting point. Then have a tax professional confirm.

What Michigan homeowners should know

Michigan’s property tax structure keeps most homeowners’ SALT totals under even the old $10,000 cap, so the federal increase changes less here than in high-property-tax states. Two Michigan rules do that work.

The Principal Residence Exemption removes up to 18 mills: A Michigan resident who owns and occupies a home as a principal residence can claim the PRE, which exempts it from the local school operating millage, up to 18 mills. File Form 2368 with your city or township assessor. The deadlines are June 1 and November 1.
Proposal A caps how fast your taxable value grows: Taxable value cannot rise in one year by more than 5% or the rate of inflation, whichever is less, excluding new construction. The cap is removed the year after a transfer of ownership, which is why a buyer’s bill often jumps above what the seller paid.
Michigan’s income tax is a flat 4.25% for 2026: At that rate, a household would need roughly $235,000 of Michigan taxable income before state income tax alone hit $10,000.
What that adds up to: Between the PRE and Proposal A, a typical Michigan homeowner’s combined state income and property taxes often stay under $10,000, so the jump from a $10,000 cap to $40,400 changes nothing on their return.

If your Michigan bill jumped recently, the cause is usually an uncapping after purchase or a lost PRE, not a federal change.

How Align handles Michigan property taxes

The year after a Michigan home sells, its taxable value resets to half of the assessor's market value, so the seller's tax bill is not your tax bill. Samantha quotes the number you will pay, and she quotes it on the high side on purpose.

Veterans may owe far less. Michigan's Disabled Veterans Exemption removes property taxes on the home a qualifying disabled veteran lives in, and Samantha points eligible buyers to it.

See the Michigan uncapping study

Sources: Michigan Treasury, transfer of ownership and uncapping; Michigan Treasury, Disabled Veterans Exemption (MCL 211.7b).

FAQ: New tax laws and homeownership

Here are answers to common questions about new tax laws and homeownership.

How much can I deduct in state and local taxes now?

Up to $40,000 for tax year 2025 and $40,400 for 2026, up from the previous $10,000 cap, with the higher limit running through 2029. The benefit is reduced above $505,000 of modified adjusted gross income in 2026 but never cut below $10,000. You still have to itemize to claim it, so the higher cap matters most to homeowners whose property and income taxes push them past the standard deduction.

Is mortgage interest still tax deductible?

Yes, and it is now permanent rather than scheduled to expire. Interest on up to $750,000 of mortgage debt used to buy, build, or substantially improve your main or second home remains deductible if you itemize. Loans incurred between October 14, 1987 and December 15, 2017 qualify under a grandfathered $1 million limit instead.

Can I deduct PMI or mortgage insurance premiums?

For tax years beginning after December 31, 2025, yes. Qualified mortgage insurance premiums are treated as deductible home mortgage interest, and that deduction was not available on a 2025 return. It effectively lowers the after-tax cost of a low-down-payment loan for itemizers. If avoiding mortgage insurance was the only reason you were stretching for 20% down, revisit that with your tax preparer and your loan officer, and review first-time home buyer tax credits while you’re at it.

Do these tax changes make it cheaper to own a home?

For itemizers, generally yes. Especially where property taxes are high, since the higher SALT cap can be worth thousands a year. For the majority of homeowners who take the standard deduction, which is $32,200 for joint filers in 2026, the changes have little effect. Whether you itemize depends on your total deductions versus that standard amount, which a tax professional can calculate for you. Our homeownership guide covers the other costs that move the same math.

The bottom line on new tax laws and homeownership

The One Big Beautiful Bill Act raised the SALT deduction cap from $10,000 to $40,000 for 2025 and $40,400 for 2026, made the mortgage interest deduction permanent on up to $750,000 of home acquisition debt, and turned qualified mortgage insurance premiums back into deductible mortgage interest for tax years beginning after December 31, 2025. It also ended both residential energy credits after 2025. All of it runs through one gate: you have to itemize, and your itemized deductions have to beat a $32,200 standard deduction for joint filers in 2026. For many Michigan homeowners, they still won’t.

If a change in your after-tax cost of owning has you reconsidering your loan, talk to Align Lending. We shop your scenario across our lender network and show you the options side by side. Call 248-506-5727 or start online.

Footnotes:

1. This is general information, not tax advice. Tax law changes, and how any provision applies depends on your filing status, income, and individual circumstances. Consult a qualified tax professional about your situation before acting on anything in this article. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD. Return to text.

3. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency. Return to text.

4. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms, a rate quote, or tax advice. Actual deductions depend on your filing status, income, property, loan terms, and other items on your return. Return to text.

Sources: One Big Beautiful Bill Act enacted July 4, 2025 as Public Law 119 to 21; Section 70108 makes permanent the limitation on the home mortgage interest deduction and allows certain mortgage insurance premiums to be included in that deduction, effective for taxable years beginning after December 31, 2025. SALT deduction limit of $40,000 ($20,000 if married filing separately) for 2025, reduced above $500,000 of modified AGI ($250,000 if married filing separately) but not below $10,000 ($5,000 if married filing separately), IRS Publication 530 (2025) and IRS Topic No. 503. SALT limit of $40,400 ($20,200 if married filing separately) for 2026, reduced above $505,000 of modified AGI ($252,500 if married filing separately) but not below $10,000, IRS Publication 505 (2026) and IRS “Correction to state and local income tax deduction amount in the 2026 Form 1040-ES”; annual inflation adjustments, Rev. Proc. 2025 to 32. Increase effective for calendar years beginning in 2025 and ending before January 1, 2030, IRS Link & Learn Taxes. Home acquisition debt limits of $750,000 ($375,000 if married filing separately) for debt incurred after December 15, 2017 and $1 million ($500,000 if married filing separately) for debt incurred after October 13, 1987 and before December 16, 2017; home equity interest deductible only where proceeds buy, build, or substantially improve the home; mortgage insurance premium deduction expired for 2025, IRS Publication 936 (2025). Qualified mortgage insurance definition and Box 5 reporting of premiums of $600 or more per mortgage, Instructions for Form 1098 (Rev. December 2026). Residential clean energy credit not allowed for expenditures made after December 31, 2025 and energy efficient home improvement credit not allowed for property placed in service after December 31, 2025, IRS “One, Big, Beautiful Bill provisions” and IRS Publication 530 (2025). Standard deduction of $15,750, $31,500 and $23,625 for 2025 and $16,100, $32,200 and $24,150 for 2026, and the 22% bracket beginning above $100,800 for joint filers in 2026, IRS. Exclusion of up to $250,000 of gain ($500,000 on a joint return) with 24-month ownership and two-year use tests within the five-year period ending on the sale date, IRS Publication 523 and IRS Topic No. 701. Michigan Principal Residence Exemption from local school operating millage up to 18 mills, with Form 2368 deadlines of June 1 and November 1, Michigan Department of Treasury. Proposal A limit on annual taxable value growth to 5% or the rate of inflation, whichever is less, excluding new construction, and uncapping following a transfer of ownership, Michigan Department of Treasury. Michigan individual income tax rate of 4.25%, MCL 206.51(1)(b) and Michigan Department of Treasury.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Tax rules, dollar limits, and effective dates change, and how they apply depends on your individual circumstances; confirm your situation with a qualified tax professional. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.