Key Tax Deduction Updates Under OBBBA: What Homeowners, Educators, and Small Business Owners Need to Know

POOJA SRIVASTAVA
Aug 18, 2025
2 min read

The One Big, Beautiful Bill Act (OBBBA) introduces several important tax law changes beginning in 2026 that affect homeowners, educators, and small business owners. Below is a breakdown of the most impactful updates and what they mean for you.

1. Home Mortgage Interest Deduction

The $750,000 cap on qualified residence mortgage interest ($375,000 if Married Filing Separately), originally enacted under the TCJA, is now permanent.
The suspension of the interest deduction for up to $100,000 in home equity debt remains permanent.
Starting in 2026, mortgage insurance premiums will once again be treated as deductible mortgage interest—this time permanently.

Historically, mortgage insurance premiums were only deductible for short extensions of one or two years. OBBBA locks this in, giving homeowners certainty moving forward.

2. Educator Expense Deduction

OBBBA strengthens and expands the educator deduction rules starting in 2026:

Moves educator expenses to non-2% miscellaneous itemized deductions, meaning they survive the repeal of 2% miscellaneous deductions.
Expands eligibility to:
- Interscholastic sports administrators and coaches
- Nonathletic supplies for health or physical education courses
- Books, supplies, and supplemental materials used as part of instruction (not limited to the classroom)

Deduction Structure:

Above-the-line deduction: $250 per educator (inflation adjusted; $300 for 2022–2025).
Remaining qualified expenses: Deductible as itemized expenses on Schedule A.

3. Qualified Business Income Deduction (§199A)

OBBBA makes the popular 20% QBI deduction permanent, ensuring ongoing relief for business owners.

Key Updates Beginning 2026:

Phaseout Range Increased:
- From $50,000 ($100,000 MFJ) ➝ $75,000 ($150,000 MFJ), adjusted for inflation.
- More specified service trade/business owners may now qualify.
- Taxpayers within the range may qualify for higher deductions.
Interplay with Itemized Deduction Limitation:
- Starting 2026, the §68 overall itemized deduction limitation is reinstated.
- For QBI purposes, taxable income must be adjusted to exclude disallowed itemized deductions.

Example Jamie has:

$60,000 QBI
$65,000 taxable income
$10,000 disallowed itemized deductions under §68

Modified taxable income = $55,000.QBI deduction = 20% of $55,000 = $11,000 (instead of $12,000).

New Minimum Deduction for Small Business Owners:

At least $400 minimum QBI deduction if:
- The taxpayer has at least $1,000 in QBI
- And materially participates in one or more businesses

What This Means for You

Homeowners: Mortgage insurance premiums are once again deductible, providing long-term savings.
Educators: Broader expense categories mean more opportunities to deduct classroom and extracurricular costs.
Business Owners: Permanence of the 20% QBI deduction plus higher phaseout ranges—gives more taxpayers access to valuable tax savings.

The One Big, Beautiful Bill Act (OBBBA) introduces several important tax law changes beginning in 2026 that affect homeowners, educators, and small business owners. Below is a breakdown of the most impactful updates and what they mean for you.

1. Home Mortgage Interest Deduction

The $750,000 cap on qualified residence mortgage interest ($375,000 if Married Filing Separately), originally enacted under the TCJA, is now permanent.

The suspension of the interest deduction for up to $100,000 in home equity debt remains permanent.

Starting in 2026, mortgage insurance premiums will once again be treated as deductible mortgage interest—this time permanently.

Historically, mortgage insurance premiums were only deductible for short extensions of one or two years. OBBBA locks this in, giving homeowners certainty moving forward.

2. Educator Expense Deduction

OBBBA strengthens and expands the educator deduction rules starting in 2026:

Moves educator expenses to non-2% miscellaneous itemized deductions, meaning they survive the repeal of 2% miscellaneous deductions.

Expands eligibility to:

Interscholastic sports administrators and coaches

Nonathletic supplies for health or physical education courses

Books, supplies, and supplemental materials used as part of instruction (not limited to the classroom)

Deduction Structure:

Above-the-line deduction: $250 per educator (inflation adjusted; $300 for 2022–2025).

Remaining qualified expenses: Deductible as itemized expenses on Schedule A.

3. Qualified Business Income Deduction (§199A)

OBBBA makes the popular 20% QBI deduction permanent, ensuring ongoing relief for business owners.

Key Updates Beginning 2026:

Phaseout Range Increased:

From $50,000 ($100,000 MFJ) ➝ $75,000 ($150,000 MFJ), adjusted for inflation.

More specified service trade/business owners may now qualify.

Taxpayers within the range may qualify for higher deductions.

Interplay with Itemized Deduction Limitation:

Starting 2026, the §68 overall itemized deduction limitation is reinstated.

For QBI purposes, taxable income must be adjusted to exclude disallowed itemized deductions.

Example Jamie has:

$60,000 QBI

$65,000 taxable income

$10,000 disallowed itemized deductions under §68

Modified taxable income = $55,000.QBI deduction = 20% of $55,000 = $11,000 (instead of $12,000).

New Minimum Deduction for Small Business Owners:

At least $400 minimum QBI deduction if:

The taxpayer has at least $1,000 in QBI

And materially participates in one or more businesses

What This Means for You

Homeowners: Mortgage insurance premiums are once again deductible, providing long-term savings.

Educators: Broader expense categories mean more opportunities to deduct classroom and extracurricular costs.

Business Owners: Permanence of the 20% QBI deduction plus higher phaseout ranges—gives more taxpayers access to valuable tax savings.

Reach out to contact@2cherrytax.com

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