Interesting Associated Press article:  Who Gets the Biggest Mortgage-Interest Tax Break? Wealthy Homeowners:

Despite the mortgage interest deduction’s reputation as a boon to the middle class, the group that takes the deduction most often is the wealthy. A study of 2006 tax filings by the Congressionally sponsored Joint Committee on Taxation found that nearly half the households that filed tax returns itemizing a mortgage-interest deduction made $100,000 or more that year.

"There’s no dispute about that. It inordinately favors high-income folks in high cost-of-living areas," said Paul L. Caron, dean of faculty at the University of Cincinnati law school. …

Moderate-income home owners in the 10 or 15% tax bracket don’t benefit much from a deduction, even if they do qualify, said Len Burman, director of the Tax Policy Center, a nonpartisan think tank. But wealthier people at a higher tax rate do. "A millionaire with a million-dollar mortgage, they get to write off their interest at a 35 percent rate — 40 percent or more if you include state taxes," he said.

Caron points out that interest paid on the mortgage of a vacation home is also tax deductible. Taxpayers who have convinced the IRS that they spend part of their year living on their yacht have even been able to deduct interest on their yacht payments, he said. "That’s far removed from the perception of what this is all about," he said.