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.