Types

• Mortgage interest includes any interest paid on a mortgage for a main or second home. It also includes interest paid on an equity loan or a line of credit associated with your mortgage. The full amount of your interest is deductible unless your mortgage is more than $1 million, according to Bankrate.com.
  
  

Effects

• The standard deduction for a married couple is $10,700. If you itemize deductions, you might be able to take a much larger deduction, which would decrease your taxable income. A homeowner with a new $150,000 mortgage pays about $10,000 per year in interest, according to Foner Books. Added with other deductions such as real estate taxes, excess medical expenses and charitable donations, he might increase his deduction to nearly double the standard deduction, decreasing his tax.
  
  

Example

• For example, if taxable income equals $80,000, U.S. income tax on that is about $12,000. However, if itemized deductions reduce the adjusted gross income to $60,000, the tax is about $8,000. In this scenario, deducting mortgage interest and expenses reduces the amount of taxes due by about $4,000.