I investigate how the Tax Reform Act of 1986 (TRA) reshaped household mobility by preserving mortgage interest deductibility while abolishing other personal loan deductions. Using PSID panel data and an instrumental variables framework, I show that the TRA induced mortgage holders to expand borrowing by $7600, reducing home equity by 8.2 percentage points and lowering mobility by 3.8 percentage points. Placebo tests reveal renters exhibited no mobility changes, validating a mortgage-specific fiscal channel. The mobility constraint operated primarily among high-income households (where tax incentives were strongest), within-state moves (local housing adjustments), and liquidity-constrained borrowers. Simultaneously, an asymmetric capital gains tax treatment prevented even asset-rich households from rebalancing portfolios to offset equity losses. The findings reveal a tax-driven leverage mechanism: fiscal policies subsidizing housing debt immobilize households by eroding equity buffers and preventing portfolio optimization, impeding labor-market adjustment even in the absence of negative equity.