When you’re a landlord, you have a lot of big expenses – not the least of which is interest paid on mortgages and loans. Fortunately, that interest can be deducted on your taxes providing you with at least some relief. Learn about what deductions you can and can’t take and how to claim your mortgage interest in this guide to deducting rental property mortgage interest. Show
You can also find out more in our guide to the 10 Tax Deductions you can Claim as a Landlord. 1. What is the Home Mortgage Interest Deduction (HMID)?As a homeowner, you can elect to itemize rather than take the standard deductions on your taxes, and claim the interest on the first $750,000 of mortgage principal you’ve borrowed on your Schedule A. Depending on your circumstances, the home mortgage interest deduction can save you a significant amount on your taxes. As a landlord, you can’t take the HMID on your rental properties. But that’s actually a good thing, because you can deduct the mortgage interest on your rental properties as business interest on your Schedule E. This offers much more flexibility and doesn’t require you to itemize your Schedule A. 2. Is Mortgage Interest Tax Deductible on Rental Properties?One of the tax benefits of real estate investing is that your mortgage interest is considered a business expense. You can deduct it on your Schedule E when the loan has been used for a property you’re renting out. All types of home loans can be deducted, including conventional mortgages, nonconforming home loans and FHA loans. Only the interest portion of the loan can be deducted, however. 3. How Much Mortgage Interest is Deductible?You can deduct all the interest you paid on a mortgage for your rental property, with a few exceptions:
4. Is Mortgage Interest on a Second Home Deductible?If you own a second home that you use privately, you may be eligible to take the HMID on your Schedule A. You can only deduct the interest on a second home on your Schedule E, however, if it’s being used for rental activity. Here are a few examples.
5. Can I Deduct Interest From Other Types of Loans?As long as a loan is taken to pay for expenses related to your rental properties, you can claim the interest alongside any mortgage interest. Because your real estate business is considered a business, you can claim the interest paid on any rental property loans, from bank loans to lines of credit, and even credit cards as long as you can prove the money was used for your rental properties. Rental property interest deductions at a glance
Final Thoughts: Tax Deductions for Rental Property MortgagesThere are lots of expenses associated with being a landlord, and mortgage interest is typically one of the largest expenses you will have. Fortunately, you can deduct your mortgage interest as an expense on your Schedule E. FAQs Why isn’t all Mortgage Interest deductible? As a landlord, you can only deduct the mortgage interest that is specifically related to your real estate business. Just as you can’t deduct the cost of your personal expenses, you can’t deduct interest on mortgages for your own home. However, you may be able to deduct your personal mortgage interest on your Schedule A using the Home Mortgage Interest Deduction. As a landlord, you can only deduct the mortgage interest that is specifically related to your real estate business. Just as you can’t deduct the cost of your personal expenses, you can’t deduct interest on mortgages for your own home. However, you may be able to deduct your personal mortgage interest on your Schedule A using the Home Mortgage Interest Deduction. What other expenses are tax deductible? For the most part, all of your rental property expenses can be deducted on your taxes, as long as they’re necessary and reasonable. You can deduct the cost of advertising, insurance, property tax, maintenance and even travel. How much mortgage interest can I deduct if I also live in the home? If you’re renting a separate unit in an owner-occupied home, such as a basement apartment, you can deduct a fraction of your mortgage interest equal to the fraction of the home that’s rented out. For example, if your rented basement apartment comprises ¼ of the home’s square footage, you can deduct ¼ of your mortgage interest on your Schedule E. You may also be able to take the HMID on your Schedule A for the remainder of your interest expense. Can you write off mortgage principal payments on rental?Remember that you only deduct the interest you pay on a loan to purchase or improve a rental property. You may not deduct payments of principal—that is, your repayments of the amount you borrowed. The principal is ordinarily added to the basis of your property and depreciated over 27.5 years.
Are principal payments tax deductible?The principal of a mortgage is the amount you borrow for the loan. Your mortgage payments that go toward the principal reduce the loan balance. These payments are not tax deductible.
What deductions can you claim for rental property?10 Rental property tax deductions for landlords. Mortgage interest. If you are paying off a mortgage on your rental property, you can deduct the interest on that loan. ... . Maintenance and repairs. ... . Depreciation. ... . Insurance. ... . Employees and contractors. ... . Legal and professional services. ... . Advertising costs. ... . Utilities.. |