The mortgage interest deduction in 2026: who actually benefits

Pairs with the PMI calculator

Two provisions of the One Big Beautiful Bill Act took effect for the 2026 tax year and both are real wins for some homeowners. Mortgage insurance premiums are deductible again for the first time since 2021, permanently this time. And the cap on state and local tax deductions quadrupled.

The coverage has been cheerful and imprecise. A widely-syndicated example runs roughly: if you pay mortgage insurance at 1% of your loan, that is another $4,000 you can deduct. For a great many of the households being told this, the correct figure is zero, and the reason is a phase-out that hardly anyone is reporting.

Start here: for most people it is worth nothing

Mortgage interest is an itemized deduction. You claim it on Schedule A instead of the standard deduction, never as well as. So it is worth something to you only if all your itemized deductions added together exceed the standard deduction — and even then, only the amount by which they exceed it is doing any work.

For tax year 2026 the standard deduction (IRS Rev. Proc. 2025-32) is:

Roughly 91% of returns take the standard deduction. If you are one of them, your mortgage interest deduction is worth exactly nothing — not “less than you thought”, but nothing — and your effective mortgage rate is your note rate.

Here is how far a substantial mortgage gets you on its own:

What actually changed for 2026

Four things, and it is worth separating them because they do not all cut the same way.

• The $750,000 cap is now permanent. Interest is deductible on the first $750,000 of acquisition debt ($375,000 married filing separately). Loans in place before 16 December 2017 keep the older $1 million limit. This was going to expire; it no longer will.
• The SALT cap rose to $40,400 for 2026, up from $10,000, phasing down toward $10,000 once modified AGI exceeds $505,000. This is the change that matters most, because it is what actually pushes households over the itemizing threshold. It reverts to $10,000 in 2030.
• Mortgage insurance premiums are deductible again, treated as qualified residence interest, permanently, from the 2026 tax year. This covers PMI on conventional loans and FHA, VA and USDA premiums, so long as the insurance relates to acquisition debt on your first or second home. Notably, these premiums are not subject to the $750,000 acquisition-debt cap.
• Home equity interest stays non-deductible unless the borrowing was used to buy, build, or substantially improve the home securing it. Borrow against the house to consolidate credit-card debt and the interest is not deductible. This is now permanent.

The catch in the PMI deduction

Here is the part being left out. The mortgage-insurance deduction carries an income phase-out, and it is a steep one:

Worked through: a married couple with AGI of $104,000 paying $1,500 in premiums are $4,000 into the $10,000 phase-out band, so they lose 40% — $600 — and deduct $900. The same couple at an AGI of $115,000, paying $4,000 in premiums, deduct nothing whatsoever.

The bind this creates

Now put the two rules side by side, because they point in opposite directions.

To get any value from the mortgage-insurance deduction you must itemize — which generally means a large mortgage, or high state and local taxes, or both. But those things correlate strongly with a large income. And a large income switches the deduction off.

It is not empty — a household in a high-property-tax state with a modest income and a low-down-payment loan can land squarely inside it, and for them this is a genuine and welcome saving. But it is a long way from “millions of homeowners can now deduct their PMI”, which is roughly how it has been reported.

And note the cruel geometry of it: the households paying the most mortgage insurance are those who put the least down, on the largest loans they could qualify for — which usually means they are stretching, which usually means their income is not small. The deduction is best targeted at people who frequently cannot use it.

Who genuinely benefits

• Itemizers in high-tax states, who are the real winners of the SALT change. With the cap at $40,400 rather than $10,000, a household paying $22,000 in combined state income and property tax now deducts all of it — and adding $12,000 of mortgage interest puts them comfortably over $32,200 for the first time.
• Households under the $109,000 AGI line who also itemize — these are the people the restored mortgage-insurance deduction was actually written for.
• Buyers with pre-2018 loans above $750,000, who retain the $1 million cap.

Everyone else — which is to say most people — should assume the deduction changes nothing about their situation, and should not let it influence any decision.

What to do before December

1. Check Box 5 of your Form 1098 now. That is where mortgage insurance premiums are reported. Because the deduction lapsed after 2021, many servicers simply stopped populating it. Ring yours and ask whether Box 5 will carry a figure for the full 2026 calendar year. If the answer is no, start keeping your monthly statements and the annual insurance certificate — you can substantiate the deduction from those, but only if you have them.
2. Run a mid-year projection. Add up mortgage interest, state and local tax (up to the cap), charitable gifts, and mortgage insurance premiums. Compare the total to your standard deduction. If you are close, the decision is worth real attention; if you are $15,000 short, stop thinking about it.
3. If you are near the line, consider bunching. Concentrating two years of charitable giving into one year can lift you over the threshold in that year and let you take the standard deduction in the other.

The thing this is never a reason to do

A deduction is a partial rebate on a cost you have actually incurred. Even at the very best, a dollar of mortgage interest in the 24% bracket costs you 76 cents after tax. It never costs you nothing, and it never makes you money.

So the interest deduction is not a reason to keep a mortgage, not a reason to borrow more, and not a reason to avoid paying one down. And the mortgage-insurance deduction is emphatically not a reason to tolerate PMI a month longer than the law requires — PMI is a cost that buys you nothing at all, and the federal rules for ending it are specific and enforceable. Those rules are set out in how to actually get PMI removed.

Take the deduction if you are entitled to it. Never let it shape the decision.

Frequently asked questions

Mortgage Ledger publishes educational information, not personalized financial, legal, tax, lending, or investment advice. The figures here are estimates built on stated assumptions and will not match a lender’s underwriting exactly. Confirm any number that matters against your Loan Estimate and a licensed professional before you act on it.