Mortgage Interest Deduction 2026: $750,000 Cap, HELOC, PMI

What the 2025 law changed, and what it left alone

Most pages on this deduction say the $750,000 limit was “extended”. The text is more specific. Section 70108 of Public Law 119-21 makes several edits to 26 U.S.C. 163(h)(3)(F), and the Code’s own amendment notes record each one.

Source: Public Law 119-21, 139 Stat. 72 (congress.gov), section 70108; 26 U.S.C. 163 current text and notes (law.cornell.edu). The words of former clause (ii) are quoted in the Code’s amendment note; the Act itself says only that it strikes the clause.

Two consequences follow. For a 2025 return nothing about the $750,000 limit changed, because it already applied; the new item for the return filed in 2027 is the mortgage insurance line. And the home equity rule is not a temporary suspension any more: a loan secured by your home that is not used to buy, build or substantially improve it is outside the deduction for good, unless Congress acts again.

The limit, by the date the loan was made

The Code sorts debt by date, and Publication 936 turns that into one worksheet. The limits are for the sum of your qualified balances, not per loan and not per house.

Source: 26 U.S.C. 163(h)(3) current text; IRS Publication 936 (2025), Home Acquisition Debt and Grandfathered Debt.

Three details decide most cases:

• Only debt that bought, built or improved the home counts. Publication 936 defines home acquisition debt as a mortgage taken out “to buy, build, or substantially improve a qualified home”, secured by it. A refinance counts only up to the balance of the loan it replaced: the Code says refinanced debt is acquisition debt “only to the extent the amount of the indebtedness resulting from such refinancing does not exceed the amount of the refinanced indebtedness”. A $300,000 cash-out on a refinance is home equity debt, however you spend it (see our cash-out refinance page for the lending side).
• A mortgage taken within 90 days of buying counts as purchase debt. Publication 936: a mortgage secured by your home is treated as acquisition debt if you buy the home “within 90 days before or after the date you take out the mortgage”, up to the home’s cost. Its own Example 1 uses a $150,000 mortgage that funded stocks: the whole loan qualifies because it was no more than the home’s cost.
• Older debt eats the new room. Table 1 takes the larger of your grandfathered debt and $1,000,000, adds the balances, and only then looks at $750,000. In our reading, a borrower with a $1,000,000 loan from 2016 who adds a $500,000 loan in 2026 has a $1,000,000 qualified loan limit and $1,500,000 of balances, so 1,000,000 / 1,500,000 = 0.667 of the interest on both loans is deductible (our arithmetic).

Worked case 1: a $1,400,000 purchase in 2026

The ratio on line 14 of Publication 936’s Table 1 is the whole calculation: “Divide the amount on line 11 by the amount on line 12”, rounded to three places. Line 11 is the qualified loan limit and line 12 the average balance of the mortgages. We assume a fixed 6.50% rate and a balance that stays level through the year (Publication 936 allows the highest balance, “but you may benefit most by using the average balances”; this is our simplification). Interest is the balance times 6.50%.

Our arithmetic on Publication 936 (2025), Table 1, lines 11 to 16. The rounding in line 14 moves the result by a few dollars. For a separate return, replace $750,000 with $375,000.

The pattern is the point: above $750,000 the deduction does not grow. A buyer who finances $1,120,000 instead of $750,000 pays $24,050 more interest in the first year and deducts $26 more (our arithmetic). The excess is personal interest unless the money was used for business or investment, in which case Publication 936 says to allocate it (Table 1, line 16) and shows where each kind goes.

Worked case 2: the same home, plus a $200,000 HELOC

Now add a home equity line of $200,000 on the same house, drawn in 2026 at an assumed 8.00%, so $16,000 of interest for the year. The first mortgage stays at $1,120,000 and $72,800. What the line does depends only on where the money went. Treasury Regulation 1.163-8T says interest is allocated “in the same manner as the debt” and that the allocation “is not affected by the use of an interest in any property to secure the repayment of such debt or interest”. The statute’s home equity rule and the regulation then split the cases.

Our arithmetic. Authority: 26 U.S.C. 163(h)(3)(A), (B) and (F)(i)(I); Treasury Regulation 1.163-8T(a)(4), (c)(1) and (m)(3); IRS Publication 936 (2025), Table 2; Publication 550 (2025), chapter 3.

Four readings of the table:

• The improvement case is the only one where the HELOC enters the cap, and it barely helps. Debt of $1,320,000 against a $750,000 limit lifts the deduction from $48,776 to $50,438, $1,662 more for $16,000 of extra interest (our arithmetic).
• The rental case is not capped at all. The regulation says qualified residence interest is “not taken into account in determining the income or loss from any activity for purposes of section 469”. The HELOC in this case is not qualified residence interest, so it is part of the rental’s result and meets the passive rules (see our passive loss limit page and the tax on rental income page). Publication 527 makes the same point for a refinance of the rental itself: the part of the interest tied to proceeds “not related to rental use generally can’t be deducted as a rental expense”.
• Form 1098 will not do the sorting. Publication 936 says interest in box 1 of Form 1098 from a home equity loan, or a line of credit secured by the property, “is not deductible if the proceeds were not used to buy, build, or substantially improve a qualified home”. Keep a record of each draw and what it paid for, because the regulation traces disbursements. Our HELOC on investment property page shows how rarely lenders offer lines secured by the rental itself.
• The investment case depends on how the vehicle is taxed. Publication 550 says investment interest “does not include any qualified home mortgage interest or any interest taken into account in computing income or loss from a passive activity”. A line used to buy listed shares goes to Form 4952; a line used to buy a limited partnership interest in rental real estate usually goes to the passive result. That is a preparer’s question.

Second homes and rentals: the use test

The Code lets you treat “1 other residence” each year as a qualified residence, chosen by you, and a dwelling you never rent can be treated as a residence whether or not you use it. Rent it out and the use test applies. Publication 936: you must use the home “more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer”; otherwise it is rental property, not a second home. A property that fails the test is a rental: the mortgage interest goes to Schedule E under Publication 527, with no $750,000 test, though the passive rules apply.

The cap is shared. In our arithmetic, a $600,000 loan on a main home plus a $400,000 loan on a second home is $1,000,000 of acquisition debt against $750,000, so 750,000 / 1,000,000 = 0.750 of the interest on both is deductible.

Mortgage insurance premiums: restored, but income-tested

For years after 2021 the Code said the premium deduction did not apply; Publication 936 (2025), the edition posted on irs.gov when we read it, still carries the reminder that the deduction “has expired”, which is right for a 2025 return. Section 70108(a)(1)(D) says clause (iv), the termination, “shall not apply”, so the premium rule in section 163(h)(3)(E) is live again for tax years beginning after December 31, 2025. The rule has four limits worth knowing:

• Which premiums. “Qualified mortgage insurance” means insurance provided by the Department of Veterans Affairs, the Federal Housing Administration or the Rural Housing Service, and private mortgage insurance as defined in the Homeowners Protection Act of 1998. That settles a point on which search results disagree: FHA premiums are in the statute.
• Which loans. Premiums count only in connection with acquisition indebtedness on a qualified residence, and not for mortgage insurance contracts issued before January 1, 2007.
• Prepaid premiums are spread over the life of the mortgage, except premiums paid to VA or the Rural Housing Service.
• The income phase-out. The amount is “reduced (but not below zero) by 10 percent of such amount for each $1,000” of AGI over $100,000, “or fraction thereof”. Because a fraction counts as a full step, the schedule is a staircase:

Our arithmetic on 26 U.S.C. 163(h)(3)(E)(ii). For a separate return the threshold is $50,000, the step is $500 and the allowance reaches zero above $54,500.

A reader with the $250,000 of assets this site is written for, and an income to match, will usually get nothing here. The line matters for younger buyers with FHA or low-down-payment loans.

Whether you itemize: standard deduction, SALT cap and the 2/37 rule

Home mortgage interest is an itemized deduction, so it matters only if your itemized total beats the standard deduction. For 2026, Rev. Proc. 2025-32 sets the standard deduction at $32,200 for joint returns, $24,150 for heads of household, and $16,100 for single and separate returns.

Two other rules from Public Law 119-21 sit beside it. Section 70120 sets the SALT cap at $40,400 for 2026, reduces it by 30% of modified AGI over $505,000, and does not let it fall below $10,000. Using the statute’s formula, the cap reaches its floor at a modified AGI of $606,334 (our arithmetic). Section 70111 rewrites section 68 so that itemized deductions are cut by 2/37 of the lesser of the deductions or the taxable income above the point where the 37% bracket starts, which Rev. Proc. 2025-32 puts at $768,700 for joint returns and $640,600 for single filers.

Our arithmetic on Public Law 119-21 section 70120 and Rev. Proc. 2025-32 section 4.14. Single filers have the same SALT cap and a $16,100 standard deduction. Charitable gifts and other itemized deductions lower the mortgage interest needed.

A joint filer with $1,000,000 of AGI, the $48,776 of first-mortgage interest from case 1 and the $10,000 SALT floor has $58,776 of itemized deductions. The section 68 cut is 2/37 of the lesser of $58,776 and $231,300 (AGI over $768,700, our simplification), or $3,177, leaving $55,599 (our arithmetic). At the 37% rate each dollar of itemized deduction is therefore worth about 35 cents, not 37: the interest is worth $17,072 of tax, not $18,047. Our pass-through entity tax page covers the SALT cap for owners of K-1 real estate funds.

What a reader can do with this

This is a description of what the documents say, not a plan for anyone:

• Sort every loan on the return by two facts: the date it was made (before October 14, 1987, through December 15, 2017, or later) and what each dollar paid for. Publication 936’s Table 1 asks for exactly these.
• For a home equity line, list each draw and its use before the lender’s Form 1098 arrives. Home improvement draws join the $750,000 pool; rental purchases go with the rental; personal draws and cash-out refinance money are outside the deduction.
• Compare your balances to $750,000 ($375,000 if filing separately). Above it, the deduction stops growing, and the ratio on line 14 is the cap divided by the balance. Investment property mortgages (current rates) are rental interest and sit outside this test.
• Check AGI against $100,000 and $109,000 before counting on a mortgage insurance deduction, and check whether you will itemize at all.
• Know who answers this. Tracing a HELOC across Schedule A, Schedule E, Form 4952 and Form 8582 turns on the facts of your return. Estimated payments, state rules and the choice of second home each year are for a CPA or enrolled agent.

This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 22, 2026: Public Law 119-21 (139 Stat. 72), sections 70108, 70111 and 70120, congress.gov; 26 U.S.C. 163 current text with the Public Law 119-21 amendment notes, Legal Information Institute (law.cornell.edu); Rev. Proc. 2025-32, sections 4.01 and 4.14, irs.gov; IRS Publication 936 (2025), Publication 527 (2025) and Publication 550 (2025), irs.gov, the editions posted when we read them; 26 CFR 1.163-8T, eCFR (text as of October 1, 2025). Rates, balances and the HELOC amounts are assumptions for the worked cases; every ratio, share and dollar result marked as our arithmetic is computed by CrowdfundedWealth from the figures stated. This is analysis of public documents, not investment, legal or tax advice.