A tax deduction is a limited break on tax liability given by the federal government. An allowed deduction gives a person the ability to deduct a certain amount from his or her taxable income. A person might be able to take a tax deduction on the interest paid on his or her mortgage. For instance, a person with $1,000 in mortgage interest may have a $1,000 deduction. In that case, he or she might be able to deduct $1,000 from his or her taxable income. A person with $100,000 in income will only have to pay taxes on $99,000 worth of income instead of the total amount that he or she actually took in during the year. The government allows people to apply these deductions for a number of real estate-related items. First, people can generally deduct their mortgage interest. They can also deduct loan points in some instances. In many places, local property tax amounts can be deducted from federal income tax liability.