The tax deductions you’re eligible to take for mortgage interest* and property taxes greatly increase the financial benefits of home ownership. Let’s work through a hypothetical situation to see how it works.

If we assume the following:

$9,877 Mortgage interest paid (a loan of $150,000 for 30 years, at 7 percent, using year-five interest)

+$2,700  Property taxes (at 1.5 percent on $180,000 assessed value)

 $12,577 Total deduction

Then, multiply your total deduction by your tax rate.**

For example, at a 28 percent tax rate: $12,577 x 0.28 = $3,521.56

$3,521.56 = Amount by which you have lowered your federal income tax

*Mortgage interest may not be deductible on loans over $1.1 million. In addition, deductions are decreased when total income reaches a certain level.

**The rate at which you’re taxed is determined by your tax bracket, which in turn is determined by how much you earned in a given year along with your filing status (single, married filing jointly, married filing separately, or head of household). IRS Publication 501 will help you determine your rate.

Source: National Association of REALTORS®