Almost everyone knows the interest-rate tax deduction is a key benefit to carrying a mortgage.

But maybe it’s not worth as much as you think, especially if your income is no more than modest. Rarely, if ever, does the deduction justify taking on a bigger debt.

Federal income tax rules allow taxpayers to deduct the interest paid on mortgages for first and second homes. The year’s interest payments are subtracted from income, producing a lower taxable income and reducing the tax bill. Interest on home equity loans is generally deductible as well.

In the common way of looking at it, the savings is based on the homeowner’s “marginal” tax rate, or rate paid on the final dollar earned. If you are in the 25% bracket, the deduction reduces your taxes by $25 for every $100 paid in interest.

Today, the 30-year fixed-rate mortgage averages about 5.5%, according to the Survey. The Mortgage Tax Savings Calculator shows monthly payments on a $300,000 loan would be about $1,700. In the first month, about $1,375 of that would be interest, the rest principal. Interest costs would drop slightly every month as the balance on the loan gets smaller.

A homeowner in the 25% tax bracket would save $4,100 in taxes on the $16,400 paid in interest during the first year. During the life of the loan, interest would total about $313,000. Tax savings would be about $78,000, assuming the bracket stayed the same.

But the common view doesn’t account for another key factor: The standard deduction available to taxpayers who do not itemize their returns to claim mortgage interest, local taxes, charitable gifts and other deductions.

For 2009, the standard deduction is $11,400 for married couples filing joint returns, and $5,700 for single people and married people filing separately.

It’s one or the other: You cannot take both the standard deduction and itemized deductions like mortgage interest. Itemized deductions therefore aren’t worth anything unless they total more than the standard deduction, and then their true value is limited to the amount by which they exceed the standard deduction.

In fact, the standard deduction is so large that two-thirds of taxpayers don’t bother to itemize, and hence get nothing out of any mortgage interest deduction for which they are eligible.

In the example, the homeowners can claim $16,400 in mortgage interest if they itemize. Assuming they are a married couple filing jointly, they could get $11,400 in a standard deduction. Mortgage interest therefore increases their deduction by only $5,000, saving them just $1,250 in taxes. (For simplicity, this assumes no other itemized deductions.)

Because the standard deduction is the same for everyone, regardless of income, it’s a bigger factor for people with lower incomes and less-expensive homes.

Imagine a couple in the 15 % tax bracket with a $200,000 mortgage. They’d pay about $10,900 in interest in the first year, saving $1,640 in tax if they itemized. But by claiming the $11,400 standard deduction instead, they could get a bigger tax saving, $1,710. For this couple, the mortgage interest deduction is worthless.

Most tax-preparation software like TurboTax (Stock Quote: INTU) guides the user through calculations to determine whether to itemize or take the standard deduction. There also are a number of online calculators which can be found by typing “itemize or standard deduction calculator” into your search tool.

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