Primary Residence Rules
You can deduct interest on up to $750,000 of mortgage debt used to buy, build, or substantially improve your main home and one secondary residence. Mortgages taken out before December 15, 2017 are grandfathered at the old $1,000,000 limit. The deduction requires itemizing on Schedule A — if the standard deduction exceeds your itemized deductions (including mortgage interest), you don't benefit from this deduction.Rental Property Mortgage Interest
Mortgage interest on rental properties is fully deductible as an operating expense on Schedule E, regardless of the loan amount. There's no $750,000 cap for rental properties. This is one of the major tax advantages of real estate investing. The interest is deducted against rental income, and if your deductions exceed rental income, the loss may offset other income subject to passive activity loss rules.Example: Homeowner vs. Landlord
Homeowner: $400,000 mortgage at 7% = $28,000 annual interest. Fully deductible if itemizing (below $750K cap). At 24% bracket, saves $6,720 in taxes. Landlord: $200,000 mortgage on rental property at 7.5% = $15,000 annual interest. Deducted on Schedule E against rental income. Plus you can deduct depreciation, insurance, property taxes, repairs — often creating a paper loss even when cash flow is positive.
Home Equity Loan Interest
Interest on home equity loans and HELOCs is deductible only if the funds were used to buy, build, or substantially improve the home securing the loan. Using a HELOC to pay off credit cards or buy a car? That interest is not deductible. Using it to renovate your kitchen? Deductible (as long as total mortgage debt stays under $750,000). Keep records of how you used the funds.
Interest on home equity loans and HELOCs is deductible only if the funds were used to buy, build, or substantially improve the home securing the loan. Using a HELOC to pay off credit cards or buy a car? That interest is not deductible. Using it to renovate your kitchen? Deductible (as long as total mortgage debt stays under $750,000). Keep records of how you used the funds.
Track Mortgage Interest Across Properties
Hivebooks tracks mortgage interest payments across your primary home and rental properties, automatically categorizing them for Schedule A or Schedule E.
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