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How To Use A Mortgage To Reduce Taxable Income Amount of tax that is payable to government is usually a worry for any tax payer. At times the amount payable to the government seems high and hence lowering the net income of the taxpayer. It is therefore important to identify some legal ways of reducing the amount of payable tax with a view to increasing one’s net income. However, there is need to accompany such ways with enough proof to show that one’s income is low. By use of mortgage interest deduction, intermediate and high-income earners can reduce the number of taxable dollars and hence payable tax. The level of knowledge among most taxpayers of using this method has been low, and this has resulted to most of them being taxed heavily. A a large number of middle-income earners combined with a huge group of high-income earners have pending mortgages on their households. As earlier illustrated a tax payer should provide enough proof of the amount they paid as interest on mortgages where under the mortgage interest deductions the amount they paid as benefits would be subtracted from the total taxable income which would hence result to them paying lower tax rates. The mortgage interests serves to balance the tax system. The taxpayers who pay higher interest towards mortgage are relieved a higher amount of payable tax. The tax payer might find themselves in a situation whereby they pay half the amount they used to pay as tax. It hence acts as a balancing system between the high, medium and low-income earners. This the method may not guarantee hefty gains regarding tax average rates, but it also involves no losses. Taxpayers have a better chance of owning a home under the mortgage interest deductions due to reduced taxes.
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High-income earners should pay high tax rates compared to low-income earners in a progressive tax system. The taxpayer’s income should increase over their lifetime. At the same time the mortgage interest decreases over the life span of a tax payer. Thus when one earns less, they pay high towards mortgage interests. The government hence relies on the mortgage interest deduction to balance the tax rates between high and low-income earners since earnings increase with decreasing mortgage rates and hence tax rates remains average.
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Rules governing tax are dynamic but at current mortgage interest deduction contributes to striking a balance in the tax system. The system may look simple, but it has complex financial components. Any person willing to lower the amount of tax that they pay should integrate their mortgages in their taxable income.