Interest Deduction

A deduction for taxpayers who pay certain types of interest. Interest deductions reduce the amount of income subject to tax. The two main types of interest deductions are for home mortgage and home equity loan interest, and margin account interest. These deductions are allowed primarily to encourage home ownership and investment activity. Other interest deductions can come from the interest paid on student loans.

Interest deductions face some limitations. Taxpayers must be able to itemize in order to claim either of the deductions listed above, and margin account interest and other investment-related expenses are only deductible for amounts in excess of 2% of adjusted gross income. Additionally, margin loan interest is only tax-deductible if the loan is used to purchase taxable investments, and the deduction is limited to net investment income. However, once these conditions are met, it is possible to reduce or even eliminate one's taxable income if a sufficient amount of interest has been paid.


Investment dictionary. . 2012.

Look at other dictionaries:

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  • Home mortgage interest deduction — Taxation An aspect of fiscal policy …   Wikipedia

  • Mortgage Interest Deduction — A common itemized deduction that allows homeowners to deduct the interest they pay on any loan used to build, purchase or make improvements upon their residence. The mortgage interest deduction can also be taken on loans for second homes and… …   Investment dictionary

  • Student Loan Interest Deduction — An adjustment to an individual s income for any interest paid on higher education loans during the tax year. Only payments made within the first 60 months of finishing school qualify for the deduction, which is usually limited to a certain amount …   Investment dictionary

  • mortgage interest deduction — A federal tax deduction for interest paid on a mortgage used to acquire, construct, or improve a residence. Bloomberg Financial Dictionary …   Financial and business terms

  • deduction — de·duc·tion n 1: an amount allowed by tax laws to be subtracted from income in order to decrease the amount of income tax due see also internal revenue code in the important laws section compare credit, ex …   Law dictionary

  • deduction — 1 Deduction, abatement, rebate, discount are comparable when they mean an amount subtracted from a gross sum. Deduction is interchangeable with any of the others but not without some loss in precision. An abatement is a deduction from a levied… …   New Dictionary of Synonyms

  • interest — in·ter·est / in trəst; in tə rəst, ˌrest/ n [probably alteration of earlier interesse, from Anglo French, from Medieval Latin, from Latin, to be between, make a difference, concern, from inter between, among + esse to be] 1: a right, title, claim …   Law dictionary

  • deduction of tax at source — the process whereby the payer of, e.g. interest, deducts income tax at the basic rate from the payment and accounts for it to the Inland Revenue. It can be compared with the system of Pay As You Earn (PAY E), whereby employers are required to… …   Law dictionary

  • deduction — That which is deducted; the part taken away; abatement; as deductions from gross income in arriving at net income for tax purposes. In the civil law, a portion or thing which an heir has a right to take from the mass of the succession before any… …   Black's law dictionary

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