Mortgage Interest Deduction

The mortgage interest deduction is the expense paid by taxpayers for interest on mortgage credit to its creditor, which is later used as profit. This reduces the tax contribution in the Income Tax.

 

This mortgage interest deduction constitutes a benefit for the taxpayer who acquired a mortgage loan. This is because said interest can be used to pay less on your Income Tax.

Despite usually having to pay interest on the loan of money requested from the bank, they revert certain benefits to taxes since it is possible to reduce the burden of taxes state.

What is the foundation of this deduction? Like other deductions, the basis is the performance of certain activities whose financing the legislator deems worthy of protection and promotion.

On this occasion, acquiring a home and thus promoting the economy deserves a “prize” in the form of a deduction, which motivates the tax legislator to establish regulations in this regard.

Determined the full fee state, the number of certain deductions must be applied to it. When these deductions have been made, we will face the so-called net fee state. And this quota will be the one that the taxpayer must pay in the Income Tax to fulfill his fiscal obligations to the State.

Characteristics of the mortgage interest deduction

The main features of this function are:

 

• Certain mortgage interest can be deducted, and not all agree on the mortgage loan.
• The income tax deduction applies to interest on mortgage loans paid to banks or housing agencies. For example, Infonavit and Fovissste.
• The deduction only works on the actual mortgage interest. How do you know how much real interest you can deduct? You have to subtract the interest paid minus the annual inflation rate. This means that if the inflation rate is very high that year, the deduction will also go down.
• This mortgage interest deduction does not work in all countries. For example, it is not contemplated in its tax law in Spain. Instead, it does occupy a place in Mexico’s tax legislation.
• The deduction of interest is not absolute, and it has a limit. It depends on each legislation. For example, in Mexico, you cannot deduct if the total interest, plus the sum of the other deductions that the taxpayer can make in his income statement, exceeds 15% of the annual income or five minimum wages.
• An essential requirement to include this interest deduction is to prove the existence of the mortgage credit and their interests through a document. This document is called the proof of interest and is issued by the loan's financial entity or creditor institution.