$750,000 mortgage cap for interest deductions - can I deduct both primary residence & rental property interest when combined mortgages exceed $750K?

You're actually on the right track here! The mortgage interest deduction rules work differently for personal residences versus rental properties. For your primary residence, the $750,000 mortgage debt limit applies specifically to your qualified residence interest deduction on Schedule A. This is for acquisition debt used to buy, build, or substantially improve your main home and/or a second home. For your rental property, the mortgage interest is treated as a business expense on Schedule E, not as an itemized deduction. There is no cap on the mortgage amount for rental properties - you can deduct all of the mortgage interest as a legitimate expense of running your rental business. So in your specific situation, you would: 1. Deduct the mortgage interest on your primary residence on Schedule A (subject to the $750k limit, which you're under) 2. Deduct ALL the mortgage interest on your rental property on Schedule E The two properties are treated separately for tax purposes because they fall under different sections of the tax code. The rental is a business expense while the primary residence is a personal itemized deduction.

I was in an almost identical situation last year with my properties and was totally confused until I found https://taxr.ai to analyze my mortgage documents. It saved me a ton of headache when figuring out how to properly allocate the interest between Schedule A and Schedule E. The tool confirmed exactly what the previous commenter said - my rental property mortgage interest was fully deductible on Schedule E as a business expense with no cap, while my primary residence was subject to the $750k limit (which I was under anyway). It even caught that I had some property tax payments that could be split correctly between the two properties.

Just wanted to follow up after trying https://taxr.ai for my situation with multiple properties. It was incredibly helpful! The tool analyzed all my mortgage documents and clearly showed how to allocate everything between Schedule A and Schedule E for my properties. The most useful part was how it handled my complicated refinance from last year - it correctly identified which portion was acquisition debt vs. equity debt and showed me exactly what was deductible. I was actually deducting less than I was entitled to before. My tax liability dropped by about $1,200 compared to how I was planning to file!

If you're still having trouble getting straight answers about your mortgage interest deductions, I'd recommend trying https://claimyr.com to connect directly with the IRS. I spent weeks trying to get through on my own about a similar mortgage deduction question last year and kept getting disconnected or waiting for hours. With Claimyr, I got through to an actual IRS agent in about 15 minutes who confirmed exactly how the $750k limit applies in situations like yours. They even have a video showing how it works here: https://youtu.be/_kiP6q8DX5c I was skeptical at first but was desperate after my third attempt waiting on hold for over 2 hours.

I have to eat crow here. After dismissing Claimyr as a scam, I was still struggling to get through to the IRS after 4 attempts (kept getting disconnected after 90+ minutes on hold). Out of frustration, I tried https://claimyr.com yesterday and I'm shocked to report it actually worked exactly as advertised. Got a call back in about 35 minutes connecting me with an IRS agent who confirmed everything about my rental property mortgage interest being fully deductible on Schedule E while my primary residence was subject to the $750k limit on Schedule A. Saved me hours of frustration and got me the official answer straight from the IRS. Sometimes being wrong feels pretty good!

Just to add another perspective - I'm a real estate investor with multiple properties and you should also be aware of the "passive activity loss" rules. Even though you can deduct all mortgage interest on your rental, if your rental shows a loss after all expenses (including mortgage interest), you might not be able to fully deduct that loss against your other income like your W2. There are income limits and exceptions for "active participation" and real estate professionals, but it's something to keep in mind if you're counting on using rental losses to offset your other income.

Something nobody's mentioned yet - don't forget that when you eventually sell the rental property, all that mortgage interest you've been deducting on Schedule E will affect your depreciation recapture and capital gains calculations! The fact that you're deducting it as a business expense means you're reducing your basis in the property over time.