Homeowners who have been taking the standard tax deduction in recent years might want to give itemization another look this year.
The One Big Beautiful Bill Act comes with a slew of updates affecting US homeowners. The new law permanently extends a $750,000 limit on the amount of a mortgage eligible for the mortgage interest deduction and reinstates a provision allowing mortgage insurance premiums, which millions of homeowners pay annually, to be deducted as interest. The state and local tax deduction, known as SALT, also quadrupled, which can be particularly helpful for owners in states with high property taxes.
While the mortgage interest deduction isn’t changing, the reinstated premium deduction, combined with a higher SALT cap and today’s high mortgage rates, likely means itemization makes sense for a bigger set of homeowners than before.
Learn more: Standard deduction vs. itemized — Which approach is best for you?
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“There are tipping points,” said Faith Bynum, a certified public accountant in Raleigh, N.C. “If [clients] have mortgage insurance premiums that they’re paying, it can really take them over the threshold to itemizing.”
Most homeowners who put less than 20% down on their homes pay mortgage insurance until they reach the 20% equity threshold. Some with government-insured mortgages, like FHA loans, must carry it for the life of their loan. Costs vary based on loan type and credit score, but are usually between 0.2% and 2% of a mortgage annually. On a $300,000 mortgage, that would range from $600 to $6,000 for premiums.
Learn more: What is mortgage insurance, and how does it work?
Mortgage insurance premiums were previously deductible between 2007 and 2021. U.S. Mortgage Insurers, a trade group for the industry, estimated that 4 million homeowners claimed the deduction each year, averaging $1,454 per taxpayer.
Since 2018, after the Tax Cuts and Jobs Act doubled the standard deduction, eliminated certain categories for itemized deductions, and cut the amount of a mortgage eligible for interest deduction to $750,000 from $1 million, far fewer taxpayers have opted to itemize.
But as mortgage rates stay high, mortgage insurance premiums become deductible, and the SALT cap gets a boost, the numbers may make sense for more homeowners.
Read more: Mortgage insurance tax deduction — How it works and when it makes sense
“Most of my clients who bought homes in the last two years are going back to itemizing,” said Robert Persichitte, a financial planner and tax accountant at Delagify Financial in Arvada, Colo.
Although Colorado isn’t a high-tax state, Persichitte said many of his clients still pay well above the current $10,000 SALT cap after factoring in property and income tax. Those who bought homes in recent years typically have higher mortgage rates — they’ve averaged around 6.69% in the last two years, according to Freddie Mac data — that can make the mortgage interest deduction worth considering.
