The One, Big, Beautiful Bill Act (OBBBA), signed into law on July 4, introduces several important tax changes for homeowners starting in 2025. These changes could influence whether you itemize deductions or take the standard deduction—and may impact your plans for home improvements. Here’s a summary of what’s changing:
- Higher SALT Deduction Limits (But With Income Phaseouts)
The state and local tax (SALT) deduction limit—previously capped at $10,000 ($5,000 for separate filers)—is getting a temporary boost:
- 2025–2029: New limit is $40,000 ($20,000 if married filing separately), with 1% annual inflation adjustments.
- 2030 onward: Limit drops back to $10,000, unless Congress changes the law.
You can still choose to deduct either income taxes or general sales taxes, plus property taxes.
Phaseout for High Earners:
If your modified adjusted gross income (MAGI) exceeds:
- $500,000 (or $250,000 if filing separately), your SALT limit is reduced.
- The deduction drops by 30% of the amount over the threshold, but never below $10,000.
Example:
A couple earning $550,000 in a high-tax state with $60,000 in SALT taxes would see their deduction reduced to $25,000, not the full $40,000.
Taxpayers with MAGI over $600,000 (or $300,000 separately) get no benefit from the expanded deduction and are stuck with the $10,000 cap.
- SALT Workarounds Still Valid for Pass-Through Entities
The OBBBA does not eliminate state-level SALT workaround programs, which let:
- Partnerships
- LLCs taxed as partnerships
- S corporations
pay SALT at the entity level, allowing owners to bypass the federal deduction cap.
- Mortgage Interest Deduction Limits Made Permanent
The Act locks in the existing limits on home mortgage interest:
- Deduction is allowed on the first $750,000 of acquisition debt ($375,000 if filing separately).
- Applies to principal and second homes.
Home equity loan interest is only deductible if the funds are used for buying, building, or improving your home—and it counts toward the $750,000 limit.
Grandfathered loans:
Loans from before December 16, 2017 (or refinanced before 2026) may still qualify under the old $1 million limit, as long as certain conditions are met.
- New Deduction for Private Mortgage Insurance (PMI)
Starting in 2026, PMI premiums for home acquisition debt will be deductible as part of mortgage interest. But:
- The deduction phases out for AGI above $100,000 ($50,000 if separate).
- It’s fully phased out at $110,000 AGI (or $55,000 separately).
- Energy Tax Credits Ending Early
Two major home energy credits are ending sooner than expected:
- Section 25C – Home Improvement Credit
- Was set to expire in 2032, now ends after 2025.
- Credit is up to 30% of qualified expenses.
- 2025 Limits:
- $2,000 for heat pumps and similar systems
- $1,200 for all other improvements
- Individual caps include:
- $600 for windows/skylights
- $500 total for doors ($250/door)
- $150 for energy audits
- Section 25D – Residential Clean Energy Credit
- Was set to reduce in 2033 and expire by 2034.
- Now ends after 2025.
- Applies to:
- Solar panels
- Fuel cells
- Wind turbines
- Geothermal systems
- Battery storage
Action Tip:
If you’re planning energy-efficient upgrades, 2025 may be your last year to take advantage of these credits.
Final Thoughts
With the new law taking effect in 2025, now is the time to review your plans for home improvements, deductions, and tax strategy. Consider speaking with a tax advisor to understand how these changes may impact your individual situation—especially if you live in a high-tax area or have a high income.
