Property Tax, Mortgage Interest and the SALT Cap After the 2025 Tax Law

For seven years, Massachusetts homeowners could deduct no more than $10,000 of state and local taxes on their federal returns, a limit most of them passed with property tax and state income tax combined. The federal tax law signed on July 4, 2025, Public Law 119-21, raised that cap substantially for 2025 through 2029. For many households in Greater Boston, itemizing is worth doing again.

In brief: the cap on the state and local tax (SALT) deduction is $40,000 for 2025, rising 1% a year to 2029, and reduced for incomes above $500,000 until it reaches a floor of $10,000. In 2030 it returns to $10,000. The $750,000 limit on mortgage debt for the interest deduction is now permanent, and mortgage insurance premiums become deductible again from 2026, subject to income limits.

What the SALT deduction covers

It is one combined deduction, for itemizers only, covering:

State and local income taxes, or sales taxes instead if larger. For Massachusetts residents that is the state income tax, including the surtax on very high incomes.
Property taxes on your home and other personal real estate.

Taxes on a rental property are deducted against the rental income, outside the cap. How property tax works here explains how the property tax bill itself is set.

The new cap, year by year

2025: $40,000.
2026: $40,400, then rising 1% each year through 2029.
2030: back to $10,000, unless Congress acts again.

Married couples filing separately get half each year.

The phase-down above $500,000

For modified adjusted gross income above $500,000 in 2025 ($505,000 in 2026, then rising 1% a year), the cap is reduced by 30% of the excess, but never below $10,000. In practice, a household with income around $600,000 or more is back at the old $10,000 limit.

An illustration for 2025: a couple with $550,000 of income is $50,000 over the threshold. Thirty per cent of that is $15,000, so their cap is $40,000 minus $15,000: $25,000.

Mortgage interest and mortgage insurance

The $750,000 limit is permanent. Interest on up to $750,000 of mortgage debt used to buy, build or substantially improve a main or second home remains deductible; loans taken out before December 16, 2017 keep the older $1,000,000 limit. The 2025 law removed the scheduled return to the higher limit.
Home equity interest is deductible only if the money was used to buy, build or improve the home that secures it, not to pay off a car or a credit card. Home equity and refinancing covers the loans themselves.
Mortgage insurance premiums, PMI on a conventional loan or the premiums on an FHA loan, are treated as deductible mortgage interest again from 2026, with the deduction phased out at higher incomes. Check the IRS instructions for the current income limits.

Will you itemize? The arithmetic

Itemizing helps only when your itemized deductions exceed the standard deduction, which for married couples filing jointly is $31,500 for 2025 and $32,200 for 2026.

An illustration for a married couple in 2026, with hypothetical figures:

Property tax: $13,000
Massachusetts income tax: $14,000
Mortgage interest: $22,000
Charitable gifts: $3,000

Under the old cap their deduction would have been $10,000 + $22,000 + $3,000 = $35,000, barely above the standard deduction. Under the new cap all $27,000 of state and local tax counts: $52,000, about $20,000 more than the standard deduction. At a 24% federal rate that is worth around $4,800 a year.

Run your own numbers, or ask your accountant to, before assuming either way. The tax benefit of owning is real but smaller than people think, and rent versus buy explains why it belongs in that calculation at its actual size.

What it means for buying a house in Massachusetts

Higher-tax towns cost a little less after tax, for households under the phase-down, through 2029. The cap is temporary and returns to $10,000 in 2030, so do not choose a house on the strength of a deduction scheduled to shrink.
The deduction is worth your marginal rate times the amount above the standard deduction, not the full property tax bill. A $14,000 tax bill does not save $14,000.
The escrow account does not change. Your lender still collects and pays the property tax; your mortgage payment went up explains why it moves.

Planning points worth raising with an accountant

Timing of property tax payments. Massachusetts bills quarterly on a July-to-June fiscal year, so a household near a threshold may have some control over which calendar year a payment falls in. The IRS restricts deductions for tax paid before it is assessed, so ask before prepaying.
The passthrough entity excise. Massachusetts lets eligible partnerships and S corporations elect to pay state tax at the entity level, which can move state tax outside the individual cap. Self-employed owners should ask whether it helps them; getting a mortgage when you work for yourself covers the lending side.
Income near the $500,000 threshold. Retirement contributions or the timing of a large gain, a house sale for instance, can move a household across the phase-down.

The calculator shows the monthly cost of a purchase before any tax effect, which is the right place to start.

General information as of 2026, not tax advice. Figures are those in Public Law 119-21 and the IRS's 2026 inflation adjustments; thresholds change annually and the rules are complex. A tax adviser should review your own situation.