On July 4, President Trump signed the tax and spending package legislation into law. The Mortgage Bankers Association (MBA) stated that the final tax package “preserves or strengthens — and makes permanent — numerous pro-housing and pro-economic growth tax provisions… that will benefit homeowners and renters, increase housing production, and improve the financial outcomes of our single-family and commercial/multifamily members’ businesses.” Originators and lenders want to know what is in the nearly 900-page spending bill, and how certain provisions will impact their business and their clients.
Industry groups pushed for, and received, a permanent extension of lower individual tax rates, an enhanced and permanent qualified business income tax deduction, a temporary five-year quadrupling of the state and local tax (SALT) deduction cap, beginning in 2025, protection for business SALT deductions and Section 1031 like-kind exchanges, and a permanent extension of the mortgage interest deduction.
Borrowers can now permanently deduct mortgage insurance premiums (PMI, FHA MIP, VA funding fees, and USDA guarantee fees), subject to income limits. This reduces the effective cost of low-down-payment loans. Mortgage loan originators (MLOs) can position this as a long-term savings opportunity for FHA, VA, and conventional borrowers who put down less than 20 percent. The tax measure reinstates and makes permanent the deductibility of mortgage insurance premiums, which, on average, saved qualified homeowners an average of $2,364 in tax year 2021, the last year it was previously available.
The bill makes permanent the mortgage interest deduction cap at $750,000 of acquisition debt. There’s no expansion, but also no shrinkage. In high-cost markets, borrowers can plan around this known limit when purchasing or refinancing. It excludes interest on home equity but allows mortgage insurance premiums to be deducted like interest. (Without the Bill, the $750,000 deductibility level would have risen to $1.1 million.)
The Low-Income Housing Tax Credit (LIHTC) is a federal program that incentivizes developers to build or rehabilitate affordable rental housing for low-income individuals by providing a dollar-for-dollar reduction in the federal income tax liability of investors in qualified housing projects, according to HUD. In return, developers agree to rent a portion of the units at below-market rates to eligible low-income tenants. The law permanently increases 9% LIHTC allocations by 12.5% and reduces the bond financing requirement for 4% LIHTCs from 50% to 25%.
More LIHTC supply means more affordable rental housing, which supports housing stability and may ease entry-level homebuyer competition. It also presents opportunities for originators working in multifamily or with community lenders.
Federal down-payment assistance increases are NOT in this Bill. It contains no first-time homebuyer tax credit or first-generation down payment grant. Several housing program rescissions are included, such as the U.S. Department of Housing and Urban Development’s (HUD) Green and Resilient Retrofit Program. Buyers will continue to rely on state housing finance agencies (HFAs), local grants, and employer-assisted programs to help overcome down payment hurdles.
The legislation raises the state and local tax (SALT) deduction cap from $10,000 to $40,000 per household from 2025-2029, with a phase-down starting for incomes over $500,000. Homeowners in high-tax states like New York, New Jersey, and California may get larger deductions, making homeownership more attractive for upper-middle-income borrowers.
The Spending Bill includes several provisions that directly benefit real estate investors and landlords, important for brokers and loan officers working with investor clients. There is a permanent 20% deduction for Qualified Business Income (QBI). Section 199A’s QBI deduction is made permanent. Most rental real estate qualifies as a trade or business under IRS guidance. MLOs should know that real estate investors can continue deducting 20% of net rental income, lowering effective tax rates, and improving investment yields.
The business interest deduction for real property stays intact, preserving the current-law deductibility of interest expense on real property trades or businesses. This protects investors using leverage (especially commercial or DSCR loans) from losing write-offs on mortgage interest.
No changes were made to the like-kind exchange rule under Section 1031 for real estate. Investors can still defer capital gains when selling and reinvesting in new properties, which MLOs know is critical for scaling portfolios and cash flow preservation. The Bill maintains the ability to roll over gains on property sales into Qualified Opportunity Zones and other structures. This gives investors continued flexibility in deferring taxes and redeploying capital strategically.
There are obviously other components of the Bill that can impact lenders’ clients, including:
In general, originators can inform borrowers about permanent mortgage insurance deductibility, especially for FHA, VA, and 3% down conventional loans, since that is a way to offset monthly costs. The $750,000 cap on mortgage interest deductions won’t change, or expire, helping clients plan for tax impacts. The changes to the LIHTC Program may help increase the affordable housing supply. While the Act doesn’t revolutionize housing policy, in general it locks in favorable tax treatment for homeowners, real estate investors, and developers.
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