New SALT Cap, Educator Deduction, and Mortgage Insurance Deduction Changes for 2025

Several tax provisions will shift beginning in 2025 under the One Big Beautiful Bill Act. These changes affect the state and local tax deduction, the educator expense deduction, and the treatment of mortgage insurance premiums. Understanding these updates now can help taxpayers plan ahead and avoid surprises during next year’s filing season.

SALT Deduction Cap Increases to 40,000

The state and local tax deduction, known as the SALT deduction, has been limited to 10,000 since the Tax Cuts and Jobs Act. Beginning with the 2025 tax year, the cap increases to 40,000 for eligible taxpayers.

IRS overview of current SALT deduction rules: https://www.irs.gov/newsroom/state-and-local-tax-deduction

This expanded limit is intended to provide relief for taxpayers who itemize and live in areas with higher property or state income taxes. The increased cap begins to phase out at higher income levels, and taxpayers with modified adjusted gross income above certain thresholds may see the benefit reduced.

Above the Line Educator Deduction Ends After 2025

2025 is the final year educators can take the above the line deduction of 300 for out-of-pocket work expenses. Starting in 2026, this deduction is eliminated and replaced with a new structure.

The new rules shift educator expenses into the itemized deduction category and raise the allowable amount to a maximum of 1,000. This change will primarily benefit educators who already itemize or who have enough deductions to exceed the standard deduction.

IRS reference for current educator expense deduction: https://www.irs.gov/credits-deductions/above-the-line-deductions/educator-expenses

The updated deduction includes teachers, aides, counselors, principals, instructors, coaches, and other K through 12 educational professionals.

Mortgage Insurance Premiums Become Deductible Again in 2026

For several years, mortgage insurance premiums were deductible as mortgage interest. That provision expired, then was temporarily extended and allowed through 2021. Under the One Big Beautiful Bill Act, the deduction returns beginning in 2026.

IRS summary of the historic deduction for mortgage insurance premiums: https://www.irs.gov/pub/taxpros/fs-2022-20.pdf

This change gives homeowners another itemized deduction option, especially those with newer mortgages or smaller down payments.

How These Changes Affect Taxpayers

These updates may influence whether a taxpayer chooses to itemize or take the standard deduction. With the SALT cap significantly higher and the educator deduction shifting into the itemized category, some filers may see a different outcome than in prior years.

Taxpayers who pay mortgage insurance should consider how the renewed deduction beginning in 2026 may impact long-term planning and budgeting.

Why Choose Goodman Bookkeeping and Tax Services

Goodman Bookkeeping and Tax Services provides clear guidance and personalized support for individuals and small businesses navigating complex tax changes. We help clients understand how new federal rules affect their return, identify opportunities for savings, and ensure documentation is accurate and complete.

We are centrally located and serve clients throughout Maumee, Toledo, Perrysburg, Holland, Sylvania, Monclova, Whitehouse, Rossford, Waterville, and surrounding areas.

If you need help planning for the 2025 or 2026 filing seasons, our team is here to support you with experience, accuracy, and personal service.