Most of the middle income taxpayers are often worried about the total amount of taxes that they would have to pay to the government for the past tax year. Usually, their taxable income is quite high and they do not find any way in which they would be able to reduce this income. Quite obviously, if you are not able to show that your taxable income is lesser, your tax burden would be higher. For the middle income homeowners, the home mortgage interest deduction is a good way to reduce the taxable dollars. Though it is quite a debatable topic, there is not much awareness about what the home mortgage interest deduction is all about and how it helps the taxpayer.
Most of the middle income households have a pending mortgage on their homes. Even a huge group of the high income taxpayers have to pay their home mortgages. Now, under the home mortgage interest deductions, these taxpayers get a chance to show the interest paid in the last year in their tax forms and get a tax deduction for that. In simple terms, your taxable income would be reduced by the amount of interest that you have paid in the past year towards you home mortgage payments.
A common question asked by the taxpayers is that the home mortgage amount is not as much as they would like the deductions in tax dollars. So would it help them? Secondly, if tax deductions are provided on the total amount of mortgage paid, the people with a higher income and a higher mortgage would always be able to get more benefits out of the deduction than the middle or even low income groups. However, these are baseless fears. First of all, deductions would be equal to the amount paid by you last year. Had the mortgage interest deduction not been in effect, you would have to bear an unnecessary tax burden and pay almost double the amount than you are supposed to. This method helps in balancing the tax system. Therefore, the tax burden that could have been a part of your life is now nullified. There might not be very heavy gains, but there would also not be any losses in the system.
The second question seems quite legible as the mortgage interest deduction is effectively increasing with the higher amount of mortgage payable by the users. In simple terms, this might mean that the richer tax payers would be getting a larger tax relief than anyone else. We must remember that there are many limitations on the mortgage interest deduction as well. It is because of these limitations that there are no cases of the rich saving more than the middle income or the low income groups.