The most substantial tax deduction for many homeowners is the mortgage interest deduction. Mortgage interest on a primary residence (in addition to second residences) is usually tax-deductible (but not necessarily for Alternative Minimum Tax or AMT) for mortgage balances up to $1 million.  This is a change from the pre-1986 tax rule that limited your equity borrowing beyond the purchase price to certain qualified expenses, such as home improvements, medical, and education expenses. Late payment charges also may be deducted as home mortgage interest if not for a specific service received in connection with your home loan. Acquisition and home equity indebtedness must be secured by a qualified residence. If your adjusted gross income is higher than a certain level, your deductions may be limited. You may deduct all property tax payments made on your residence(s) as an itemized deduction as long as that payment is not associated with the expense of a business.

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