Mortgage Interest in 2025: $750k Qualified Debt Ceiling, PMI Treatment, and Refinances—What Still Counts

Homeownership continues to be one of the largest financial commitments for U.S. families, and the mortgage interest deduction remains one of the most valuable tax breaks. However, the IRS rules for 2025 have strict boundaries, especially when it comes to the $750,000 qualified debt ceiling, private mortgage insurance (PMI) treatment, and how refinanced loans are handled.

This blog unpacks what still counts toward deductible mortgage interest in 2025, the pitfalls to avoid, and how to maximize your tax savings while staying compliant with IRS Pub. 936 guidelines.

📌 The $750,000 Qualified Loan Ceiling

Since the Tax Cuts and Jobs Act (TCJA), the mortgage interest deduction applies only to acquisition debt up to $750,000 ($375,000 if Married Filing Separately). Acquisition debt means loans used to buy, build, or substantially improve your primary or secondary home.

Key points for 2025:

• Loans issued after December 15, 2017 fall under the $750k limit.
• Older loans may be grandfathered into the prior $1 million limit.
• Interest on home equity loans is deductible only if the funds are used for improvements—not for debt consolidation or personal expenses.

🏠 PMI (Private Mortgage Insurance) in 2025

Private Mortgage Insurance (PMI) has been a gray area in recent years. For 2025:

• PMI remains conditionally deductible for many taxpayers, though subject to income phaseouts.
• The deduction begins to phase out once your Adjusted Gross Income (AGI) exceeds $100,000 (or $50,000 if MFS).
• Above $109,000 AGI, PMI deductions are eliminated entirely.

Taxpayers in high-cost housing markets may benefit from combining PMI deductions with SALT and property taxes if itemizing.

🔄 Refinancing and Mortgage Interest

Refinancing is common in a higher-interest-rate environment, but IRS rules determine whether refinanced interest is still deductible:

• If the refinanced loan does not exceed the balance of the original mortgage, interest remains deductible under the $750k cap.
• Additional funds from a refinance are deductible only if used for home improvements.
• Cash-out refinances for personal use (e.g., paying off credit cards) do not qualify for the interest deduction.

Refinancing resets your loan but does not reset your deduction cap—you are still bound by the original acquisition debt rules.

📊 Example Scenario

A married couple refinances a $680,000 loan in 2025 and takes out an extra $70,000 for kitchen renovations. Since both the original loan and the renovation loan fall under the $750,000 cap, the entire interest remains deductible.

However, if that $70,000 were used to buy a car or pay down student loans, none of that interest would qualify.

✅ Key Takeaways for 2025 Tax Filers

• The $750,000 debt ceiling remains the key limit for deducting mortgage interest.
• PMI is deductible in 2025, but subject to strict AGI phaseouts.
• Refinanced loans must meet IRS acquisition debt rules to preserve deductions.
• Always compare itemizing vs. standard deduction to ensure maximum tax benefit.