The biggest purchase the majority of us make is our home and in the US there can major tax benefits to buying your own home. To gain this benefit you have to be an income tax payer of course, but most of us are. What Uncle Sam allows you to do is deduct the interest payments you make on your mortgage from your income. This means that you get a tax benefit at the highest rates you pay income taxes.

For example; let's say that you pay $10,000 dollars at your top tax band of 35% and pay $5000 dollars in interest payments on your mortgage. You are allowed to deduct the $5000 from your income which gives you a tax credit of $1750. The great thing is you don't have to wait to get this credit till the end of the year as you can adjust you tax payment schedule to spread this payment through the year. This makes a mortgage one of the cheapest ways to borrow money and why many of the wealthy choose interest only mortgages.

Let's understand why. Say you have an $1,000,000 mortgage at 6%. This means you pay $60,000 in interest a year. Now if you have a mortgage this large you're probably in the top tax bracket of 40%. This means, if you are lucky enough to earn so much money that you pay $60,000 dollars at this level, your mortgage gives you a tax credit of $24,000!

Another way to look at this is to adjust the interest rate, because in effect you only really pay $36,000 to borrow $1,000,000 (you would have never got the other $24,000 as it would have gone to the IRS), so the effective interest rate is 3.6%. Now a savings strategy would be to take the repayment part of a normal 30 year mortgage put it in tax exempt bonds or tax deferred mutual fund where you can earn 4.5-15%. So in 30 years you could pay off your mortgage and have a little nest egg saved, as well as enjoying the probable appreciation in the value of your home. Now before you go and buy trump tower as "your cottage in the city", you have to be aware of a couple of gotchas.

1) Alternative minimum tax (AMT).

You need to earn enough money to get the deduction. The IRS will not allow you to deduct so much interest that you pay what they deem to be too little tax (AMT). This is not normally a problem, but it can be something that catches retirees out as often their pension income is less than their salary and sets a lower ceiling on the tax benefits.

2) Property Tax (PT).

Although property taxes are also a tax deduction, you have to be able to pay them, so in effect they increase

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