Owning a home is a massive financial commitment, and the federal government just tweaked the rules of the game for the 2025 tax returns you are dealing with right now.
With the passage of the One Big Beautiful Bill Act, Washington is cementing a massive overhaul of the 2017 Tax Cuts and Jobs Act provisions, forcing a dramatic recalibration of household balance sheets across the country.
The state and local tax (SALT) deduction covers the income, sales, and property taxes you pay to your state and local governments.
The IRS has officially increased the overall limit for this deduction to $40,000 (or $20,000 for married couples filing separately).
For years, high-income earners in coastal states like New York and California have lobbied aggressively against the previous $10,000 cap instituted by the 2017 tax code overhaul.
However, the government is not giving everyone a free pass on this one.
If your modified adjusted gross income is over $500,000, that deduction limit starts shrinking fast.
This phase-down is what tax strategists are currently calling the "SALT torpedo," because taxpayers earning between $500,000 and $600,000 will see their deduction slashed by 30% of their excess income, rapidly spiking their effective tax rate before reverting back to the $10,000 floor.
It will not drop below $10,000, but high earners need to be strictly aware of that ceiling.
If you were putting off installing solar panels or upgrading your home to be more energy-efficient, the window has officially closed.
You cannot claim residential clean energy credits or energy-efficient home improvement credits for anything you bought and installed after December 31, 2025.
These credits, which were initially bolstered by the Inflation Reduction Act to subsidize rooftop solar, geothermal heat pumps, and battery storage technology, are now sunsetting.
As a result, we are projecting a massive, artificial demand spike in the residential construction and solar installation markets through the final quarters of 2025, followed by a severe cooling period in 2026 as the federal subsidies evaporate.
That means the 30% credit rate for clean energy property hit its strict expiration clock at the end of last year.
There is also a massive catch if you want to claim those energy credits on your 2025 return.
You must have hired a certified Qualified Home Energy Auditor to perform a formal home energy audit.
You cannot just guess your savings on a spreadsheet.
This auditor must have given you a written report that explicitly estimates the energy and cost savings for each improvement.
If you are paying mortgage insurance premiums every month, you can no longer deduct those on your taxes because that itemized deduction has officially expired.
If you took out a home equity loan, the Internal Revenue Service is watching exactly how you spent that money.
You cannot deduct the interest on that loan unless you used the cash specifically to buy, build, or substantially improve your actual home.
Using your house as a piggy bank to buy a sports car means you lose the tax write-off completely.
Finally, if you found yourself in a brutal financial spot and your lender actually forgave some of your mortgage debt, you get a temporary break from the Internal Revenue Service.
You can exclude that canceled debt from your gross income so you are not paying taxes on money you never actually held.
This specific relief traces its lineage back to the Mortgage Debt Relief Act of 2007 and was most recently extended by the Consolidated Appropriations Act of 2020.
Without this exclusion, ordinary Americans who undergo a short sale or a loan modification are taxed on the forgiven amount as if it were ordinary income.
But just like the energy credits, that lifeline vanished for any debt discharged after January 1, 2026.
The expiration of this $750,000 exclusion limit means the secondary mortgage market will likely see a chilling effect on loan modifications, as distressed borrowers in 2026 will face crippling surprise tax bills, potentially accelerating foreclosures instead of workouts.
Keep your receipts, hire the right auditor, and do not expect the government to subsidize your home equity loan if you used it to go on vacation.
