Mortgage Interest Deduction
What It Is:
A mortgage interest deduction allows mortgage borrowers to reduce their income tax liability by listing the amount of mortgage interest paid as an itemized deduction.
How It Works/Example:
Each year, a mortgage borrower pays a combination of interest and principal to the lender. The interest component is tax deductible, and a borrower may list the interest she paid on a mortgage during a given year as an itemized deduction on her tax return. For example, if a borrower paid $1,000 in mortgage interest in a given year, he or she may usually subtract that $1,000 from his total taxable income for that year.
Why It Matters:
The mortgage interest deduction is used as an public policy initiative to promote homeownership as a path to increased social stability.
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Cached on May 24, 2012, 12:19 pm