New tax breaks could finally bring low‑rate mortgage customers back into the market
For those last-minute tax filers, April 16 typically brings a sigh of relief as the annual scramble to get income taxes completed is over.
Whether it was a late evening sitting at the computer or last-minute meetings with tax professionals and races to the post office, the burden of filing 2025 tax returns is in the past, at least if they didn’t file an extension.
With that stress in the past, many brokers may think that the last thing that customers want to talk about the day after is taxes, but there could be potential benefits that those customers missed out on that they should plan for when filing their 2026 taxes.
One mortgage broker is surprised that more people aren’t talking about a specific tax law change from 2025, which could help homebuyers overcome higher mortgage costs stemming from higher rates, elevated property taxes, or skyrocketing property insurance.
Kevin Leibowitz (pictured top), founder and mortgage broker at Grayton Mortgage, said the changes made in President Donald Trump’s “one big beautiful bill” included increased deductions for state and local taxes (SALT), which may allow homeowners to consider itemized deductions rather than the standard deduction. In neighborhoods with higher home values, this could offset increasing mortgage costs.
“One of the things which I think hasn't gotten a lot of mention, and it probably merits a lot more press, is the increased deductibility,” Leibowitz told Mortgage Professional America. “One of the things that came out in 2025 is the increased SALT cap from $10,000 to $40,000. That’s going to help all the high-tax places.”
How the change works
For many years, homeowners didn’t have enough state and local taxes, combined with mortgage interest, to deduct to make it better than the standard deduction.
Now, with the higher SALT cap, more homeowners are likely to itemize. This opens the door for mortgage interest deductions to play a meaningful role in reducing taxable income.
Leibowitz said in New York City and surrounding areas, it could be a huge benefit to homeowners.
“It’s going to help if you go someplace like New York City, where you've got state tax and city tax,” Leibowitz said. “But some of the taxes here aren't so bad, relatively speaking, compared to New Jersey. Westchester has really high property taxes, but now you're in a position where you can then deduct.”
For example, consider a homeowner paying $12,000 annually in mortgage interest and $20,000 in combined property and state income taxes. Under the previous $10,000 SALT cap, their total itemized deductions would have been limited to around $22,000, often below the standard deduction for married couples. In that scenario, itemizing would not make sense, and the mortgage interest deduction would provide no benefit.
Under the new rules, that same borrower could potentially deduct the full $20,000 in SALT payments, bringing total itemized deductions to $32,000 or more. That change alone could make itemizing worthwhile, unlocking the value of the mortgage interest deduction.
A way to overcome higher rates
While mortgage rates have been elevated compared to pandemic-era levels, higher rates also mean more mortgage interest to deduct.
This can also be a great way for brokers to convince those with low-rate mortgages to make a move. For those entering the market now, with rates closer to 6% than the 3% many homebuyers are holding onto, there could be tangible benefits. It could be a way to convince someone to give up a lower interest rate to get back into the market.
“The maximum that you could write off is interest on $750,000,” Leibowitz said. “At 3% interest, that is $22,500 of interest, so you're still below the $32,000 standard deduction. Now at 6%, you're at $45,000. That is $13,000 over the standard deduction. The bad news is, your interest rate is higher. The good news is that not only have you blown past the standard deduction of $32,000. And you get to deduct all of those state and local taxes up to $40,000 as well.”
There is a time component to consider. The expanded SALT cap is currently set to remain in place through 2029, meaning the window for these enhanced deductions may be temporary unless extended by future legislation. However, it could give a new homeowner time to pay down their mortgage with the savings earned from a reduced tax burden. Then, they can look to refinance when rates drop, potentially before the SALT cap expansion expires.
Even with those limitations, the change introduces a meaningful lever for affordability in a higher-rate environment. It does not erase the impact of elevated borrowing costs, but it can help offset them at the margins, particularly for well-qualified buyers. For an industry navigating both affordability concerns and shifting buyer sentiment, that margin could make a difference.
Of course, customers need to consult their tax professional to make sure they understand the potential benefits available to them. Leibowitz said because these changes are so new, even some savvy customers may not be considering them. And it could make that rate north of 6% more enticing.
“It’s one way to get over the hump,” he said. “Would you rather pay 3% or 6%? Of course, the answer is 3%. But this is one way to get over the hump of where things are in the market.”
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