How Tax Law Changes In 2025 Affect Homeowners
Quick note: This is not provided as expert financial advice. All information was obtained from legitimate sources, but please verify everything with your tax or financial professional. Some deductions have income limits.
1. Mortgage Insurance Is Deductible Again
Starting in 2026, homeowners with loans that require mortgage insurance will be able to deduct those mortgage insurance premiums. (The last time this deduction was allowed was in 2021.)
Private Mortgage Insurance (PMI) is typically required when the down payment for a home loan is less than 20%. PMI for traditional loans can often be dropped when the homeowner's equity increases above 20% due to property appreciation and/or payments on the loan balance.
FHA loans taken out since June 2013 have a Mortgage Insurance Premium (MIP) that lasts at least 11 years and can last up to the lifetime of the loan, depending on the down payment amount.
According to Bankrate.com, mortgage insurance typically costs home buyers between $30 and $70 per month for every $100,000 borrowed.
2. The SALT (State and Local Tax) Deduction Limit Is Much Higher
State and local taxes include property taxes, which in some areas are very high. In 2017 new legislation created a cap on the amount of SALT that could be deducted, limiting it to $10,000.
The new limit is $40,000 and lasts through 2029, after which it reverts to $10,000.
While this won't greatly affect homeowners who don't itemize deductions or who live in areas with low state and local taxes, for those in areas where property taxes on even moderate value homes exceed $10,000 it could make a big difference.
3. Interest On New Car Loans Is Deductible Starting This Year
While this isn't directly related to real estate, being able to deduct up to $10,000 of auto loan interest is a take-home income booster that could affect a home buyer's financial scenario.
Vehicles must meet certain requirements, including being a new vehicle that has undergone final assembly in the United States. The deduction covers loans taken out in 2025 and appears to be an "above the line" item that is available to all filers, even if they don't itemize.
4. Energy Efficiency Credits Are Going Away
After December 31, 2025, homeowners will no longer receive a tax credit for energy-efficient improvements to their home. (The current tax credit is up to 30% of the installation cost.)
This means that if you've been considering items such as solar panels, a geothermal pump, or energy-efficient windows, you'll want to have them installed prior to the end of this year in order to qualify for the credit.
5. 100% Bonus Depreciation Is Back
Bonus depreciation can allow a real estate investor to depreciate portions of a property over a shorter period of time than what the IRS considers to be the life span of a residential property (currently 27.5 years).
With the new law, owners of rental properties may be able to depreciate 100% of the cost of some improvements, such as flooring, landscaping, and appliances, in the first year. This strategy is sometimes used to offset the tax burden of a high-income year. (Land and structures are typically not eligible for bonus depreciation.)
Note: The property must be new to the taxpayer and placed in service after January 19, 2025. It's important to consult with a tax professional to consider many factors involved with this strategy, including:
- Which properties and owners qualify for bonus depreciation.
- The use of cost segregation to separate the life spans of portions of the property from the entirety.
- An understanding of how depreciation recapture could affect the owner's tax bill if the property is sold.
The Bottom Line:
This information is meant to highlight portions of new legislation that may be of interest to you or someone you know. Nothing replaces the advice of a financial professional and it's important to consult with a qualified tax planning expert.
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