Mortgage interest rates have been a tax deduction for a number of years. Before 1986, interest rates for any personal loan were a tax deduction. Home mortgage interest rates tax deductions are attractive for many home owners and are used as a stepping stone for home ownership by reducing the cost of borrowing to buy your home. There are some limits that have lowered the value of this tax deduction.

Any home owner using this tax deduction must elect to itemize their tax deductions. The mortgage tax deduction will only decrease your tax if your itemized deductions surpass you’re standard deduction. Another loophole many Americans don’t see with this deduction is only available on the first $1million of mortgage debt. Home equity loans are also limited to $100,000 regardless of their purpose.

There is a difference between income tax deduction and income tax credit. Income tax deduction will decrease the amount of your income subject to taxes and income tax credit will reduce the amount of taxes you have to pay.

When someone warns you that paying off a mortgage may mean giving up a huge tax deduction, this may not be necessarily true. The mortgage tax deduction may be beneficial to many mortgage owners. Though, not everyone that has a mortgage sees a benefit from this deduction and you homeowners shouldn’t use this as the only reason to keep a mortgage.

Many homeowners use the mortgage tax deduction as an excuse not to pay a mortgage off early or to pay more interest than is necessary on a mortgage. Make the mortgage tax deduction part of your decision to obtain a mortgage, but consider other things surrounding whether or not to hold a mortgage for your home or not as well.  Home ownership comes along with other expenses that renters don’t encounter such as maintenance expenses that can be costly and are not tax deductible. Maintenance expense may include replacing a roof or major plumbing problem not covered by your homeowners insurance which could run you in the thousands of dollars.

For example, you may be paying nearly $12,000 in interest over the course of a year on your mortgage for a piece of real estate. However, your income your tax bracket may only permit you to see a tax savings of around $1200 which means you have lost over $8000 in disposable income that could have been used elsewhere. However, many will advise that they would have been paying rent for a living space anyway for the same amount of money. Therefore, they are still coming out ahead with a mortgage versus not having one. Look into your mortgage interest rate to see if you can save money on taxes or not!