Requirements

• You can only claim the mortgage interest on your first home and your second home. To qualify as your second home, you must use the home for the larger of 14 days or 10 percent of the time you rent it out. If you do not rent the home, the IRS exempts you from this requirement.
  
  

Size

• You can only deduct the interest on the first $1 million of your mortgage. If you are married but elect to file a separate return, you can only deduct the interest on the first $500,000.
  
  

Function

• You must forgo the standard deduction to claim the mortgage interest on your taxes using Schedule A.
  
  

Significance

• The tax deduction for mortgage interest offers the biggest benefits in the early years of the mortgage, when the majority of the monthly payments is interest.
  
  

Benefits

• The higher your income tax bracket, the more valuable the tax break. For example, if you deduct $7,000 of mortgage interest and are in the 35 percent tax bracket, you would save $2,450. However, if you were only in the 25 percent tax bracket, you would save $1,750.