Can I claim mortgage interest deduction on a rental property that was supposed to be my primary residence?
I recently purchased a house in another state that was supposed to be our primary residence, but my wife unexpectedly lost her job, and now I'm forced to rent the place out for a few years to make the mortgage payments work financially. The rental income will be around $2,400 per month (so about $28,800 annually), but here's my situation - my mortgage interest alone is going to be roughly $25,000 for the year since we're in the early years of a 30-year mortgage when most of the payment goes toward interest. I understand I can deduct the property taxes against the rental income, but what about the mortgage interest? Since this was originally intended to be our primary residence (we were planning to relocate to that state), but now it's a rental due to our financial circumstances, can I deduct the interest payments against the rental income I'm collecting? This would make a huge difference for our tax situation during these next few years while we're renting it out. Any insights would be greatly appreciated!
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Mila Walker
Yes, you absolutely can deduct mortgage interest on a rental property against the rental income you collect. When a property switches from personal to rental use, the tax treatment changes, and it becomes a business asset. For rental properties, mortgage interest becomes a business expense rather than a personal itemized deduction. You'll report the rental income and all related expenses (including mortgage interest) on Schedule E of your tax return. Besides mortgage interest, you can also deduct property taxes, insurance, maintenance costs, HOA fees, property management fees, and even depreciation on the property itself. Just keep in mind that you'll need to allocate any expenses between rental and personal use if you ever use the property personally during the year. Also, if your rental expenses exceed your rental income (creating a loss), there may be limitations on how much of that loss you can claim based on your income level and your participation in managing the rental.
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Logan Scott
•Thanks for the info! Quick follow-up - what happens if I eventually move back into the house and make it my primary residence again? Does the mortgage interest go back to being a personal deduction at that point?
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Mila Walker
•Yes, if you later convert the property back to your primary residence, the mortgage interest would then shift back to being a personal expense that you'd potentially claim as an itemized deduction on Schedule A, rather than a business expense on Schedule E. When you make the switch back to personal use, you'll need to prorate any expenses for the year of conversion based on the number of days it was a rental versus personal residence. Also be aware that there could be tax implications regarding depreciation recapture if you eventually sell the house after having claimed depreciation while it was a rental.
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Chloe Green
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Lucas Adams
•How does taxr.ai handle situations where you partially rent out a property? Like if I live in my house but rent out a room, would it still be useful?
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Harper Hill
•Did they give you any guidance on depreciation recapture? That's always been confusing to me and I'm worried about the tax hit if I ever sell my rental.
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Chloe Green
•For partial rentals where you live in the house but rent out a room, the service is actually perfect for that. It helps you correctly allocate expenses between personal and rental use based on square footage or number of rooms. It walks you through exactly how to split mortgage interest, utilities, and other shared expenses. Regarding depreciation recapture, yes! That was one of the most valuable parts. They provided a detailed explanation of how depreciation recapture works and even ran some future scenarios showing the potential tax impact when selling. They showed me the difference between Section 1250 and Section 1231 gains and how they're taxed differently. Really helped me plan for the future.
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Lucas Adams
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Caden Nguyen
Another thing to consider - if you're having trouble reaching the IRS to get clarification on rental property questions (which I definitely did), check out https://claimyr.com - they got me through to an actual human at the IRS in under 20 minutes when I had been trying for weeks on my own. You can see how it works at https://youtu.be/_kiP6q8DX5c too. I had specific questions about how to handle mortgage interest after converting my property from rental back to primary residence, and getting actual guidance from the IRS directly was incredibly helpful. Much better than guessing or relying on conflicting advice from random internet sources.
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Avery Flores
•Wait, how does this actually work? The IRS phone lines are always busy. Do they just keep calling for you or something? Seems too good to be true.
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Zoe Gonzalez
•Sounds like a scam to me. I spent 3 hours on hold with the IRS last month. No way some service can magically get through when millions of people can't. They probably just collect your money and tell you they tried.
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Caden Nguyen
•They use an automated system that continually dials the IRS and holds your place in line. When they reach an agent, you get a call connecting you directly. It's not magic - just technology that saves you from having to sit on hold yourself. Yes, it actually works. I was skeptical too until I tried it. The service monitors hold times across different IRS departments and optimizes when to call. They don't collect any tax information from you - they just connect you to the IRS agent when one becomes available.
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Zoe Gonzalez
I need to eat my words about Claimyr. After posting my skeptical comment, I figured I'd try it since I've been trying to reach the IRS about my rental property depreciation questions for over a month with no success. I got a call back in about 45 minutes connecting me directly to an IRS agent who answered all my questions about handling mortgage interest on my rental property. The agent confirmed everything that was said above about deducting mortgage interest on Schedule E and also gave me specific guidance about depreciation recapture if I convert back to a primary residence later. Honestly might be the best money I've spent this tax season considering how much clearer I am on everything now.
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Ashley Adams
Just to add another perspective - don't forget about depreciation! When you convert your primary residence to a rental, you MUST start taking depreciation on the property (excluding the land value). The IRS assumes you're taking it even if you don't, so you might as well claim it. The basis for depreciation is the lower of your adjusted basis in the property or the fair market value when you convert it to rental use. Residential rental property is depreciated over 27.5 years using the straight-line method.
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Alexis Robinson
•How do you figure out the land value though? My county property tax assessment has a land value listed but I've heard that's not always accurate for tax purposes.
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Ashley Adams
•You have a few options for determining land value. While the property tax assessment can be a starting point, you're right that it's not always accurate for IRS purposes. You can use a property appraisal if you had one done recently - these usually break out the land value separately. Some people use a standard ratio based on their area (like 20% land, 80% building value in some suburban areas), but that's riskier. The safest approach is to get a professional appraisal specifically for this purpose, which will hold up best in case of an audit.
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Aaron Lee
Has anyone dealt with the passive activity loss limitations? My rental property operates at a loss after all expenses and depreciation, but I've heard I might not be able to deduct all of it against my other income since I make around $160k from my job.
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Chloe Mitchell
•Yeah, that's going to be an issue for you. If your modified adjusted gross income is over $100k, the $25k rental loss allowance starts phasing out and is completely gone by $150k. Since you're at $160k, you won't be able to deduct rental losses against your other income. The losses aren't gone forever though - they're suspended and carried forward until either: 1) you have passive income from other sources, 2) your income drops below the threshold, or 3) you sell the property.
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Ava Thompson
One important thing to keep in mind is the timing of when you convert the property to rental use. The IRS considers the conversion to happen when the property becomes "available for rent" - not necessarily when you find your first tenant. This matters because it affects when you start depreciating the property and which expenses you can deduct. Also, make sure you keep detailed records of all expenses from the conversion date forward. This includes not just the obvious ones like mortgage interest and property taxes, but also things like advertising costs to find tenants, repairs to get the property rent-ready, and any property management fees. These all become deductible business expenses once it's a rental property. Since you mentioned this was supposed to be your primary residence, you might also want to consider whether claiming the rental loss deduction (if applicable based on your income) is worth potentially losing eligibility for the Section 121 home sale exclusion if you decide to sell within a few years.
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