Tax Break for Homeowners Gets Bigger and Permanent: Mortgage Insurance Deduction Cap Doubles to $200K in 2026

Congress is looking at a change that could put some money back into the pockets of homeowners paying mortgage insurance. The proposed "Middle Class Mortgage Insurance Premium Act of 2025" aims to do two key things: significantly raise the income limit for deducting mortgage insurance premiums on your taxes and make that deduction a permanent fixture in the tax code. Specifically, it bumps the adjusted gross income cap up to $200,000 for most filers (and $100,000 for those married filing separately), a big jump from the current $100,000/$50,000 limit. This change would kick in for tax years starting after December 31, 2025.

Who Gets a Break?

This bill directly targets homeowners who pay for mortgage insurance, often called Private Mortgage Insurance or PMI. This is typically required if your down payment is less than 20% of the home's purchase price. Currently, if your income is above $100,000 (or $109,000 with phase-outs), you can't deduct those PMI payments. This legislation doubles that threshold. Think about a household earning $150,000 – under current rules, they likely get no tax break for their PMI costs. If this bill passes, they could potentially deduct those premiums, lowering their overall taxable income. Making the deduction permanent also removes the uncertainty homeowners face when Congress has to periodically renew temporary tax provisions.

The Bottom Line Impact

For eligible homeowners, this means a potentially lower tax bill starting in the 2026 tax year (filed in 2027). It could make homeownership slightly more affordable, especially in areas with higher housing costs where middle-class incomes might push families over the current deduction limit. By expanding eligibility and locking in the deduction, the bill essentially provides a targeted tax cut aimed at homeowners paying PMI within the new, higher income bracket. It's important to remember this applies only to mortgage insurance premiums, not the mortgage interest itself, which has its own deduction rules. Those earning above the new $200,000/$100,000 caps, or those who don't pay mortgage insurance, won't see a direct change from this specific bill.