Mar 22 2011

What is the mortgage interest deduction?

Category: Accounting,Real Estate


Mortgage Interest DeductionThe mortgage interest deduction is a type of tax deduction that gives homeowners the ability to deduct the interest they pay on the mortgage of their home from their taxable income. This is a common tax deduction that essentially encourages home ownership. According to “”, the mortgage interest deduction is at risk. There is a plan that was presented by the National Commission on Fiscal Responsibility and Reform that threatens to replace the standard mortgage interest deduction to a 12% nonrefundable tax credit. These proposed changes to the tax code, according to “”, would have a dramatic impact on home owners and would significantly reduce the value of this deduction.

Here is an example, as suggested by “”: Suppose a middle class, home owner paying $10,000 in mortgage interest in a year faces a marginal tax rate of 25% and, to keep things simple, has enough other itemized deductions that they would itemize regardless of the mortgage interest deduction.

For that home owner, the mortgage interest deduction is worth approximately 25% x $10,000 or $2,500 in reduced taxes paid. With a 12% tax credit, the home owner’s tax benefit would be reduced to $10,000 x 12% or $1,200.

For more information or to help save the current mortgage interest deduction, please visit

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