Guest Post by Dan Honsberger, Founder of Reel Financial Planning
In recent years, many homeowners have been surprised to learn that their mortgage interest hasn't actually lowered their taxes as much as they expected. The reason? A historically high standard deduction and the $10,000 cap on state and local tax (SALT) deductions made itemizing less common for millions of households.
However, with the tax policy changes that took effect in 2025—including a higher SALT deduction cap under the "One Big Beautiful Bill Act" (OBBBA)—more households are now finding themselves itemizing deductions. As a result, mortgage interest has regained meaningful value in the overall tax planning equation.
For current homeowners, prospective buyers, and anyone considering refinancing, this shift has important implications heading into 2026 and beyond.
Why the Mortgage Interest Deduction Lost Relevance (2018–2024)
Following the Tax Cuts and Jobs Act (TCJA), two major changes reduced the number of households who itemize:
- The standard deduction nearly doubled
- The SALT deduction was capped at $10,000
Mortgage interest remained deductible, but only if you itemized. As a result, many homeowners discovered that even with mortgage interest, their total deductions still didn't exceed the standard deduction. When that happens, the mortgage interest deduction effectively provides no additional tax benefit.
For example:
- Married couple standard deduction (recent years): ~$27,000+
- SALT cap: $10,000
- Mortgage interest: $8,000
- Total itemized: $18,000 — still below the standard deduction
In this scenario, itemizing didn't make sense.
What Changed in 2025 — and Why It Matters Now
With the SALT cap increasing to $40,000 under the OBBBA, higher-income households and homeowners in moderate-to-high tax states now have larger itemized deduction totals. This matters because itemized deductions stack together:
- Mortgage interest
- Property taxes (part of SALT)
- State income taxes (SALT)
- Charitable contributions
- Certain medical expenses
With the SALT cap having risen significantly, it is now much easier for total deductions to exceed the standard deduction threshold — and once a household itemizes, mortgage interest is fully back in play as a valuable tax deduction.
Example: Before vs. After the Higher SALT Cap
Scenario A: Pre-2025 Tax Law (Lower SALT Cap)
- State income taxes: $12,000 (capped at $10,000 for deduction purposes)
- Property taxes: $8,000 (still capped within SALT)
- Mortgage interest: $14,000
- Charitable giving: $3,000
Total itemized deductions:
- SALT: $10,000 (cap applied)
- Mortgage interest: $14,000
- Charity: $3,000
- Total: $27,000
Itemizing provided little to no benefit over the standard deduction.
Scenario B: Under Current Tax Law (Higher SALT Cap)
- State income taxes: $12,000 (fully deductible)
- Property taxes: $8,000
- Mortgage interest: $14,000
- Charitable giving: $3,000
Total itemized deductions:
- SALT: $20,000
- Mortgage interest: $14,000
- Charity: $3,000
- Total: $37,000
Itemizing now clearly exceeds the standard deduction — and mortgage interest meaningfully reduces taxable income again.
Why This Matters for Homebuyers (Not Just Current Homeowners)
For years, buyers heard: "Don't count on the mortgage interest deduction."
That advice has changed. With more households now itemizing under the updated tax law:
- Mortgage interest is once again a meaningful tax planning factor
- The after-tax cost of homeownership has decreased for many buyers
- Larger mortgages carry different net cost implications than they did just a year ago
This does not mean you should buy a more expensive house solely for a tax deduction — but it does mean the deduction is once again a relevant part of the financial analysis.
Important Caveat: The Standard Deduction Is Still High
Even under the updated rules, not every household will itemize. You are more likely to benefit from mortgage interest deductions if you:
- Have higher property taxes
- Pay meaningful state income taxes
- Have a larger mortgage balance
- Make charitable contributions
Conversely, households with low mortgage interest, minimal SALT exposure, or smaller deductions overall may still find the standard deduction remains the better option.
The Bigger Picture: Mortgage Decisions Should Be About Strategy, Not Just Taxes
One common misconception in homeownership planning is: "I should keep a mortgage for the tax deduction."
That's rarely the right primary reason. Instead, the smarter approach is to evaluate affordability first, consider long-term housing goals, factor in tax implications as a secondary benefit, and align the mortgage structure with your broader financial plan.
Tax policy may enhance the value of mortgage interest, but it should complement — not drive — the decision to buy or refinance.
How CapCenter Clients Can Stay Ahead
As tax rules evolve, the intersection of mortgage planning and financial planning becomes increasingly important. Mortgage decisions are not just about the rate or monthly payment — they're part of a broader financial strategy that includes taxes, cash flow, long-term housing goals, and overall balance sheet planning.
As a fee-only, fiduciary financial planner, my obligation is to act in my clients' best interests. That also means I do not receive commissions, referral fees, or financial incentives for recommending any lender, real estate service, or financial product.
That said, I frequently refer clients and professional connections to CapCenter — not because of compensation, but because of the tangible value I've consistently seen for consumers. In particular, their Zero Closing Cost mortgage structure can meaningfully reduce the total cost of borrowing over time, especially for buyers who may move, refinance, or want flexibility without repeatedly absorbing large upfront costs. I've found their quoted rates to be competitive with the broader market, and their integrated realty and mortgage model can create additional opportunities for savings and simplicity during an already complex transaction. Just as importantly, the client experience and communication have been consistently strong, which matters when timing and clarity are critical in a home purchase.
From a financial planning perspective, that combination — cost efficiency, transparency, and service — aligns well with how I help clients evaluate major financial decisions.
Working with both a trusted mortgage originator and a financial planner can be especially valuable for homebuyers and homeowners because a mortgage is not an isolated decision. It affects tax planning, liquidity, investment strategy, risk tolerance, and long-term lifestyle flexibility. Decisions around down payment size, loan structure, refinancing, and even whether to accelerate payoff should be evaluated within the context of a household's full financial plan — not just in a vacuum.
Now that the 2025 changes have taken effect, we are already seeing a shift back toward itemization for more households — and mortgage interest is more relevant again in overall tax planning than it has been in nearly a decade. Having coordinated guidance between your mortgage professional and financial planner can help ensure your housing decisions support both your short-term affordability and long-term financial goals.
Final Thoughts
The increase in the SALT deduction cap that took effect in 2025 represents more than just a tax policy headline — it has materially changed how many homeowners experience the tax benefits of owning a home.
While the standard deduction remains high, more households are now crossing the threshold into itemizing. Mortgage interest is once again a valuable component of the deduction stack — and that's worth factoring into any housing or refinancing decision you're making in 2026.
For current homeowners, buyers, and refinancers alike, the key takeaway is simple: tax rules changed last year, and your mortgage planning should reflect that reality now.
As always, coordinate with both a tax professional and mortgage advisor to evaluate how these changes apply to your specific situation before making major financial decisions.
About the Author
Dan Honsberger is the Founder of Reel Financial Planning, a fee-only financial planning firm based in Richmond, Virginia. He specializes in helping individuals and families navigate complex financial decisions with clarity and confidence, including major life transitions like home purchases and mortgage decisions. Dan frequently writes and speaks on the intersection of financial planning, taxes, and real-world decision-making, with a focus on practical, consumer-friendly guidance. When he’s not working with clients, he enjoys fly fishing, boating, and spending time outdoors with his family.
You can reach Dan at https://www.reelfp.com/ or on Social Media - Instagram , LinkedIn, and Facebook
