How much do you really save deducting your mortgage interest?

Most people dream of owning their own home. Others dream of savings a bundle in income taxes when they stop renting and start being able to deduct mortgage interest.

The ability to deduct mortgage interest is one of the most important tax advantages of home ownership. If you exceed the personal exemption and can itemize deductions on Schedule A of your federal income tax return, you can deduct the qualified residence interest that you pay on many home mortgages. In some case, second homes are eligible too, as are most home equity loans.

You can take the deduction as long as the loan is secured by your home. There are some factors you need to take into consider to determine if you can deduct interest.

How much is your mortgage debt? If you bought your home after 1987 up to $1 million of acquisition mortgage debt for a couple, or $500,000 if you're married and file separately, qualifies for the interest deduction. If your mortgage loan amount exceeds $1 million, some of the interest will not be deductible.

Although this deduction also applies to certain home equity loans secured by your home, the IRS regulations are different. Home equity debt involves a loan secured by your main or second home that is usually more than the outstanding mortgages on the property. Home equity debt is limited to either the fair market value of the home minus the total acquisition debt, or $100,000 for a couple or $50,000 if your filing status is married filing separately for both primary residences and second homes.

The interest that you pay on a qualifying home equity loan is generally deductible regardless of how you use the loan proceeds. Be sure to check with your tax accountant to determine how much