The interest you pay on a mortgage loan can, in most cases, be deducted from your income for tax purposes. This deduction provided by the tax law is a key to reducing the cost of owning a home.

To use the deduction, the home must be your principal residence or a second home you use at least part of the year (rental properties have their own special rules). If the loan is the original one you used to buy the home, or was used to improve or construct it, you can deduct all interest paid on up to $ 1 million of the loan balance. If you have refinanced the loan or added a second mortgage since purchase, you can deduct interest paid on any loan balance up to $100,000 (over the balance on the original loan).

For example, suppose you buy a home with a loan of $280,000. Five years later, you refinance the mortgage with a new loan of $400,000. More->