[troutman]

This is allowed in the US:

http://www.irs.gov/publications/p936/ar01.html

This publication discusses the rules for deducting home mortgage interest.

Part I contains general information on home mortgage interest, including points and mortgage insurance premiums. It also explains how to report deductible interest on your tax return.

Part II explains how your deduction for home mortgage interest may be limited. It contains Table 1, which is a worksheet you can use to figure the limit on your deduction.

http://en.wikipedia.org/wiki/Home_mo...rest_deduction

A home mortgage interest deduction allows taxpayers who own their homes to reduce their taxable income by the interest paid on the loan which is secured by their principal residence (or, sometimes, a second home). Most developed countries do not allow a deduction for interest on personal loans, so countries that allow a home mortgage interest deduction have created an exception to those rules. The Netherlands, Sweden, Switzerland, and the United States each allow the deduction. The standard justification for the deduction is that it encourages home ownership. Countries that tax imputed income on home ownership may allow the deduction under the theory that it is no longer a personal loan, but a loan for income-producing purposes. Standard criticisms are that it does not significantly impact home ownership, that it allows taxpayers to circumvent the general rule that interest on personal loans is not deductible, and that the deduction disproportionately favors high-income earners.

Canadian federal income tax does not allow a deduction from taxable income for interest on loans secured by the taxpayer's personal residence. But homes used in businesses as a landlord who owns a rental residential property can deduct interest as any other reasonable business expense. The difference being the deduction is allowed only when the property is not used for the taxpayer's personal use but is used as in any other type of business. However, there may be additional exclusions for passive activity losses.

While politically popular, economists are basically united in their opposition to it.[7] The Tax Foundation has stated that few low- and middle-income taxpayers benefit,[8] calling it subsidization of the real estate industry.[9]