By Jessica I. Marschall, CPA
President & CEO, MAS LLC
November 17th, 2025
Many taxpayers are encouraged by lenders, realtors, and even well-meaning friends to take on extremely high mortgage principal balances because the interest is “deductible.” This advice ignores how Schedule A actually works, the statutory limits on deductible mortgage interest, and the reality that today’s tax rates remain historically low. A tax deduction should never drive a decision to borrow more than a household can sustainably afford; particularly in light of recent proposals to extend mortgage terms to unprecedented lengths.
How Schedule A Works Today
Schedule A provides taxpayers with three major classes of itemized deductions. Understanding these categories is essential before assuming a mortgage interest deduction will materially reduce one’s tax liability.
1. SALT Deductions
State and Local Tax (SALT) deductions include real estate taxes, state income taxes or sales taxes, and certain personal property taxes. The One Big Beautiful Bill Act (OBBBA) temporarily raised the SALT cap from $10,000 to $40,000 for tax years 2025 through 2029, with a 1% annual increase, before reverting to $10,000 in 2030. CNBC However, this expanded deduction phases out for taxpayers with modified adjusted gross income above $500,000, reverting to the $10,000 cap at $600,000 of income. CNBC MJCPA
Despite this temporary increase, many taxpayers in high-tax jurisdictions still receive limited incremental benefit from paying higher real estate taxes because the cap, even at $40,000, may not fully capture their state and local tax burden. Bipartisan Policy Center The deduction only benefits those who itemize, and even with the increased cap, it remains subject to income-based limitations.
2. Mortgage Interest
The mortgage interest deduction applies only to interest paid on up to $750,000 of qualified residence debt for mortgages originated after December 15, 2017. The OBBBA made this $750,000 limit permanent. Club720 Mortgages secured before December 16, 2017, are grandfathered under the previous $1 million limit. Club720
Taxpayers frequently misunderstand this limitation. Interest on principal above $750,000 is simply not deductible. A taxpayer with a $1.4 million mortgage does not receive double the deduction of a taxpayer with a $700,000 mortgage. The deduction is capped by law, regardless of interest rate or total principal.
Additionally, the OBBBA made important changes to what counts as mortgage interest. Beginning in 2026, Private Mortgage Insurance (PMI) will be treated as deductible mortgage interest for acquisition debt. However, interest on home equity loans remains deductible only to the extent the proceeds are used to substantially improve the home that secures the loan. National Association of REALTORS
3. Charitable Contributions
Charitable contributions remain a valuable tool for taxpayers who itemize. These deductions directly increase the total itemized amount and can help push taxpayers above the standard deduction threshold, especially those who are close to the line. Charitable giving continues to be one of the few flexible and beneficial components of Schedule A.
The Standard Deduction Threshold
For tax year 2025, the standard deduction is $31,500 for married couples filing jointly and $15,750 for single filers. Internal Revenue Service Additionally, taxpayers age 65 and older can claim an additional $6,000 deduction per qualified individual for tax years 2025 through 2028, subject to income limitations. Fidelity
This means a married couple must have total itemized deductions—including mortgage interest, SALT, and charitable contributions—exceeding $31,500 before itemizing provides any benefit. For many middle-income households, even with substantial mortgage interest, reaching this threshold proves difficult.
Low Tax Rates and Wide Brackets Reduce the Value of the Deduction
Under current law, federal income tax has seven tax rates: 10%, 12%, 22%, 24%, 32%, 35%, and 37% (and 0% of course). Tax Foundation NerdWallet For most taxpayers, effective tax rates (the actual percentage of total income paid in taxes) remain considerably lower than marginal rates due to the progressive bracket structure.
The value of a deduction equals the deduction amount multiplied by the taxpayer’s marginal tax rate. If a taxpayer is in the 22% tax bracket, every dollar of mortgage interest produces only a 22-cent reduction in federal income tax, plus any applicable state tax benefit. The deduction reduces the tax liability but does not come close to offsetting the cost of the interest paid.
A Numerical Comparison: The Real Value of the Mortgage Interest Deduction
Consider a taxpayer with a $750,000 mortgage at a 7% interest rate:
Annual interest in year one: approximately $52,500
At a 22% marginal tax rate: federal tax reduction of about $11,550
Net cost after federal tax benefit: over $40,950
Even adding a state benefit does not materially change this relationship. Spending $52,500 to save $11,550 is not a financial strategy. It is an unavoidable cost of borrowing that the tax system marginally softens.
For taxpayers encouraged to increase their principal balance simply because “the interest is deductible,” this example demonstrates the fundamental flaw in the argument. The tax deduction never outweighs the cost of the mortgage itself. It lowers the after-tax cost slightly but cannot convert interest into a financial gain.
The 50-Year Mortgage Proposal: Extending the Problem
In November 2025, President Trump and Federal Housing Finance Agency Director Bill Pulte announced they are working on a 50-year mortgage option, calling it “a complete game changer” for housing affordability. HousingWire Fox Business The proposal aims to lower monthly payments and expand homeownership access for Americans facing historically high home prices and elevated mortgage rates.
According to analysis by UBS Securities, a 50-year mortgage could lower monthly payments by approximately $119 compared to a 30-year mortgage on a median-priced home. However, extending the loan duration from 30 to 50 years could double the total dollar amount of interest paid over the life of the loan. Fortune An Associated Press analysis found that borrowers would pay nearly $389,000 more in interest over the life of a 50-year mortgage compared to a 30-year mortgage. Fortune
This proposal amplifies the exact problem this article addresses: the dangerous misconception that tax deductibility justifies taking on more debt or extending debt obligations. While the mortgage interest would remain deductible (up to the $750,000 limit), the massive increase in total interest paid far exceeds any tax benefit.
Housing experts and the Mortgage Bankers Association have expressed skepticism, noting that any affordability benefit would be offset by increased borrower risk, slower equity growth, and the extended amortization period. CNN The Hill Additionally, current Dodd-Frank regulations do not allow mortgages longer than 30 years to qualify as Qualified Mortgages, meaning 50-year mortgages would carry higher interest rates as non-QM loans. HousingWire WSAW
The average age of first-time homebuyers reached 40 years old in 2025, according to the National Association of Realtors. Fortune A 50-year mortgage for a 40-year-old buyer means potential payments continuing until age 90—well beyond typical life expectancy and creating the risk of passing mortgage debt to one’s heirs.
Itemizing vs. Taking the Standard Deduction: Running the Numbers
Approximately 90% of taxpayers claim the standard deduction rather than itemizing. NerdWallet For most households, the combination of mortgage interest, SALT taxes (even with the temporary $40,000 cap), and charitable contributions does not exceed the generous standard deduction amounts.
Example: Middle-Income Married Couple
Property taxes: $8,000
State income taxes: $6,000
Mortgage interest: $15,000
Charitable contributions: $2,000
Total itemized deductions: $31,000
This couple would take the $31,500 standard deduction instead, receiving zero benefit from their mortgage interest payment. The “deduction” provided no tax advantage whatsoever.
Example: Higher-Income Married Couple
Property taxes: $15,000
State income taxes: $20,000 (limited to $40,000 SALT cap)
Mortgage interest: $20,000
Charitable contributions: $5,000
Total itemized deductions: $60,000
This couple exceeds the standard deduction by $28,500, receiving a marginal benefit on that incremental amount only. At a 24% marginal rate, their federal tax savings from itemizing versus taking the standard deduction is approximately $6,840—far less than the $20,000 they paid in mortgage interest.
The Schedule A Deduction Helps Some Taxpayers, But Should Never Drive Borrowing Decisions
The mortgage interest deduction can provide meaningful tax relief for households with high itemized deductions, particularly those in high-tax states who can benefit from the temporarily expanded SALT cap. However, the presence of a deduction does not justify taking on more debt or extending mortgage terms to unprecedented lengths.
Housing economists emphasize that the best way to improve housing affordability is to build more homes where people want to live. CNN A cheaper monthly payment achieved through extended loan terms, if not accompanied by increased housing supply, may simply push home prices higher while trapping borrowers in decades of additional interest payments.
Sound financial planning focuses on:
- Affordability based on actual cash flow, not hypothetical tax savings
- Total cost of borrowing, including all interest paid over the life of the loan
- Equity accumulation, which slows dramatically with longer amortization periods
- Sustainable debt levels that account for life changes, job loss, and economic downturns
- Exit strategies, including the ability to refinance or sell without remaining underwater on the mortgage
The tax system provides limited relief through the mortgage interest deduction, but that relief should never be treated as a rationale for overleveraging a household. The deduction is properly understood as a partial reduction of a required expense—not a financial strategy, not a wealth-building tool, and certainly not a justification for taking on more debt than a household can comfortably service.
Conclusion
The mortgage interest deduction remains a valuable component of the tax code for homeowners who itemize deductions. However, its value is limited by statutory caps on deductible principal, income-based phase-outs of other deductions, and the generous standard deduction that most taxpayers claim.
In an environment where policymakers are considering 50-year mortgages and where home prices remain elevated relative to incomes, taxpayers must understand the mathematics underlying these decisions. Paying $50,000 in annual mortgage interest to receive an $11,000 tax benefit is not strategic financial planning. Extending that arrangement to 50 years—doubling total interest paid—makes the situation dramatically worse, regardless of the tax treatment.
Before taking on additional mortgage debt or extending existing obligations, consult with a qualified CPA or financial advisor who can analyze your specific tax situation, cash flow requirements, and long-term financial goals. The mortgage interest deduction should be understood as what it is: a modest tax benefit that slightly reduces the after-tax cost of homeownership, not a reason to borrow more money.
Sources:
- Internal Revenue Service, Publication 936 (2024), Home Mortgage Interest Deduction
- Tax Foundation, “2025 Tax Brackets and Federal Income Tax Rates” (November 2025)
- H&R Block, “One Big Beautiful Bill: SALT deduction and other changes for homeowners” (July 2025)
- Bipartisan Policy Center, “How Does the 2025 Tax Law Change the SALT Deduction?” (October 2025)
- National Association of Realtors, “Mortgage Interest Deduction” (2025)
- UBS Securities, Analysis of 50-Year Mortgage Proposal (November 2025)
- Associated Press, “White House considers backing 50-year mortgage” (November 2025)
- ResiClub Analytics, “Housing affordability is so strained that the White House is looking at a 50-year mortgage option” (November 2025)
Jessica I. Marschall, CPA, is President and CEO of MAS LLC, a tax advisory firm serving over 400 clients. She also leads The Green Mission Inc., Probity Appraisal Group, and GM-ESG. She has 26 years of experience in tax law, valuation methodology, and sustainable building practices.
