The “One Big Beautiful Bill” Act (OBBBA!) Residential mortgage lending - summary

1. Mortgage Interest Deduction (MID) – No Expansion, But Stabilization

The bill makes permanent the $750,000 cap on mortgage acquisition debt eligible for the interest deduction.
- Background: This limit was originally set under the Tax Cuts and Jobs Act of 2017 (TCJA), down from $1,000,000. It was previously scheduled to sunset in 2025.
- Now: That sunset is eliminated; the $750,000 cap is permanent.
Applies to:
- Loans used to buy, build, or substantially improve a primary or second home.
Who’s Affected:
- Homebuyers in high-cost areas (e.g., NYC, SF, LA) may feel the cap more acutely.
- For most middle-income borrowers: no effect.

2. Home Equity Loan & HELOC Interest Deductibility

The bill codifies the non-deductibility of interest on:
- Home Equity Loans (if not used to improve the home).
- Home Equity Lines of Credit (HELOCs), unless used for qualified acquisition/improvement purposes.
This rule was a temporary change under the TCJA—now made permanent.

3. Real Estate Investment – Strong Support!!!!

a. Low-Income Housing Tax Credit (LIHTC) Expansion

The bill makes significant changes to the LIHTC program, a key financing tool for affordable housing:

Component	Previous Rule	New Rule (OBBB Act)
9% LIHTC Allocation	Fixed per capita, indexed	12.5% increase in allocation to states (more funding)
4% LIHTC Bond Threshold	50% of costs via PABs	Lowered to 25%, making more projects eligible for the 4% credit
Basis Boost	Certain areas only	Expanded to include more rural and underserved communities

Effect: Developers will find more affordable housing projects financially feasible, thanks to increased credit and lower financing hurdles.

b. Real Estate Business Interest Deductibility

The bill preserves full interest deductibility for real estate businesses opting out of Section 163(j) interest deduction limits.
- That means:
  - Mortgage interest on income-generating properties (multifamily rentals, commercial buildings) remains fully deductible.
  - Especially beneficial for DSCR loans (debt-service coverage ratio), where interest is a major cost.
  Impacts by Stakeholder

Stakeholder	Key Takeaways
Homebuyers	No expanded deduction; $750K limit is now permanent. HELOC interest still not deductible unless used for improvements.
Homeowners in Expensive Markets	May feel squeezed by the cap on deductible mortgage interest.
Real Estate Investors	Strong boost via tax credit expansions and preserved interest deductions.
Affordable Housing Developers	Major win: more LIHTC allocation, easier access to 4% credits.
Lenders & Banks	Continued demand for LIHTC financing, investment in tax equity deals.

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Examples:

1. First-Time Homebuyers

Profile

Key Impacts

✅ Still eligible for full mortgage interest deduction (as long as loan ≤ $750K).
❌ HELOCs used for debt consolidation or non-home uses remain non-deductible.
🔁 No special incentives like expanded credits or deductions in this bill.

Summary

Minimal impact. Most first-time buyers remain fully covered under the $750K cap.

2. Move-Up Buyers in High-Cost Areas

Profile

Key Impacts

Summary

Limited tax deductibility for larger mortgages. Buying in high-cost areas means some interest won’t be deductible.

3. Homeowners Tapping Equity (Cash-Out or HELOC)

Profile

Key Impacts

❌ Interest on home equity loans/HELOCs not deductible, unless:
- The money is used for substantial home improvements.
🔁 Cash-out refinance interest on new principal is only deductible up to $750K total acquisition debt.

Summary

Interest deductibility is limited unless funds are used for home improvement. Non-home use = no tax benefit.

4. Real Estate Investors

Profile

Key Impacts

✅ Full mortgage interest deduction remains for real estate businesses (via Section 163(j) opt-out).
✅ LIHTC expanded, especially 4% credit due to relaxed bond requirement (50% → 25%).
🏗️ Easier to finance affordable housing deals.