First, let me give a factual description of what's going on. Then I'll analyze it. This is a nice break, but it's only available if the taxpayer itemizes his deductions. To itemize your deductions means to list all of them on your tax form. As you can see, if our taxpayer had itemized his deductions, he would actually have lost money.
People usually itemize only when their deductions add up to be more than the standard deduction.
For most taxpayers, this only happens once they buy a house. They obviously have to pay the loan back. They also have to pay back interest. This interest is deductible. All that means is that you don't have to itemize to get the deduction.