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Reducing Taxable Income By Use Of A Mortgage Taxpayers are generally worried about the high taxes they are bound to be deducted by the government. 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. This has to be accompanied by a proof that their taxable income is low and hence the amount of tax that one should pay. Mortgage interest deductions offer one of the best ways to lessen the amount of taxable income especially to middle and high-income earners. 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 big group of middle-income taxpayers has pending mortgage on their households where they are joined by a huge group of higher income earners. Under the mortgage interest deductions, should the taxpayer be able to identify the amount of interest they paid towards mortgages during the past year, then their taxable income is bound to reduce by an amount equal to the interest on mortgages that they paid. 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 the amount they ought to have paid might have been double the amount they pay after mortgage interests deductions. Mortgage interest deductions hence act to balance the average tax rates for the high-income earners and the low-income earners. One should not expect huge gains from this method. However, there are no losses incurred. 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. One’s income is bound to increase over their lifetime. Mortgage is bound to decrease over one’s lifetime. It shows that when the income is low, the mortgage interest is the highest. The mortgage interests deduction strikes a balance between the period when one’s income is low and when it is high and hence maintaining average tax rates.
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The mortgage interest deductions serves to adjust the tax system although the tax rules are dynamic and hence may change with time. Though it may seem simple, the mortgage system includes some complex financial components. To reduce the amount of tax payable to the government and increase the amount of net income, one ought to integrate their mortgages.