Can I claim mortgage interest deduction on my rental property that was meant to be my primary residence?

Hey all, So here's my situation. I purchased a home in a different state that was supposed to be our primary residence (we were planning to relocate there). Unfortunately, my husband suddenly got laid off, and now we're forced to rent the place out for a few years until our finances stabilize. The rental income is about $2,500 per month, so roughly $30K annually. I know I can deduct the property taxes against this rental income, but I'm wondering if I can also deduct the mortgage interest payments? Since it's the first few years of the mortgage, almost all of my payments are going toward interest - around $27K in interest for the year. This was 100% intended to be our primary residence before the layoff situation happened. We had already started packing and everything, but now we're stuck where we are until the job situation improves. Any advice would be super appreciated! Thanks!

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22 comments

Connor Murphy

•8M

Yes, you absolutely can deduct the mortgage interest on your rental property! When a property becomes a rental, it changes from a personal residence to an investment property for tax purposes. You can deduct the mortgage interest as a business expense on Schedule E, along with property taxes, insurance, maintenance costs, HOA fees, property management fees, and depreciation. Keep in mind that you can only deduct expenses against your rental income, though in some cases passive activity loss rules might allow you to deduct a portion of losses against your other income. Make sure you're tracking all expenses related to the property, including any travel costs to check on the property if it's out of state. Also, don't forget to set up depreciation - you'll need to depreciate the building portion of your property (not the land) over 27.5 years.

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Connor Murphy

•8M

The property tax statement usually has a breakdown somewhere showing land value and improvement (building) value separately. If not, check the county assessor's website where your property is located - they typically have this information. If you still can't find it, a reasonable method is to check comparable land values in the area and subtract from your total property value. You might also consider getting a property appraisal that breaks down land vs. building value. Only the building portion gets depreciated at 3.636% per year (1/27.5) of the building's value.

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KhalilStar

•8M

I was in a similar situation last year and discovered taxr.ai (https://taxr.ai) which was incredibly helpful for sorting out my rental property deductions. I had converted my future retirement home into a rental when my plans changed, and I was completely lost with all the tax implications. The tool analyzed my mortgage statements, property tax documents, and rental income records, then clearly showed me exactly what I could deduct for mortgage interest, property tax, and even helped me set up the depreciation schedule properly. It saved me from making expensive mistakes like forgetting to track my travel expenses to check on the property.

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KhalilStar

•8M

You can either upload documents or enter information manually - it's completely up to you. The document analysis feature is secure and makes things faster, but it's optional if you prefer to enter data yourself. The main difference from TurboTax or H&R Block is that taxr.ai specializes in complex tax situations like rental properties and business deductions. It provides detailed guidance on specific issues rather than general tax preparation. While TurboTax asks generic questions, taxr.ai identifies potential deductions others might miss and explains the why behind each recommendation. It's more like having a property tax specialist reviewing your specific situation.

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Kaiya Rivera

•8M

Just wanted to follow up about taxr.ai - I decided to try it for my rental property tax situation and I'm really glad I did. It caught several deductions I would have missed, especially around some repair expenses I didn't realize were deductible versus capital improvements. The mortgage interest deduction guidance was spot-on and it walked me through exactly how to handle the depreciation calculations that I was struggling with. It even flagged that I could deduct the cost of a new water heater as an immediate expense rather than depreciating it (thanks to Section 179). Definitely saved me way more than I expected!

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Katherine Ziminski

•8M

If you're having trouble getting straight answers from the IRS about rental property deductions (I know I did), I highly recommend Claimyr (https://claimyr.com). I spent DAYS trying to get through to the IRS to clarify some questions about converting my primary residence to a rental and the mortgage interest deduction rules. With Claimyr, I got through to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. They have this cool system that basically waits on hold for you and calls you once an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, mortgage interest is fully deductible against rental income, and cleared up my confusion about depreciation starting dates too.

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Katherine Ziminski

•8M

I don't recall the exact cost, but it was reasonable considering the time it saved me and the value of getting definitive answers directly from the IRS. You're right that the IRS should improve their accessibility, but until they do, this is a practical solution. It absolutely does work! I was skeptical too, which is why I tried it as a last resort. The system calls the IRS, navigates all the phone menus for you, waits on hold (sometimes for hours), and then calls you once there's an actual human on the line. No more putting your phone on speaker and waiting all afternoon just to get disconnected.

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Vanessa Chang

•8M

I'm eating my words about Claimyr. I was totally skeptical but decided to try it anyway because I was desperate to get clarification about my rental property deductions before filing. It actually worked exactly as promised! I got a call back in about 45 minutes (which is way faster than I've ever reached the IRS on my own), and the agent walked me through all my questions about mortgage interest deductions and depreciation for my rental property. Turns out I was doing a couple things wrong that could have triggered an audit flag. Worth every penny for the peace of mind and time saved.

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Madison King

•8M

Don't forget that you need to report the rental income and expenses on Schedule E. The mortgage interest for a rental property goes on Schedule E, not Schedule A like it would for your primary residence. Also, since you converted a property from personal to rental use, your basis for depreciation is either the fair market value on the date of conversion OR your adjusted basis (what you paid plus improvements), whichever is LOWER. This is a common mistake people make.

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Madison King

•8M

Exactly right! If your property has appreciated since purchase, you use your original adjusted basis (purchase price plus any improvements, minus any depreciation already taken). If the property has declined in value, you use the lower fair market value at the time of conversion. This rule prevents people from claiming higher depreciation deductions on appreciated property. For example, if you bought the house for $200K, made $20K in improvements, and it's worth $300K when you convert it to a rental, your depreciation basis would be $220K (not $300K).

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Julian Paolo

•8M

Just a warning - if you ever sell this property, you'll need to recapture all the depreciation you've taken (or were supposed to take even if you didn't claim it!) at a 25% tax rate. This surprises a lot of people. Also, if you move back into the property later and make it your primary residence again, you might qualify for some exclusion of gain under the ownership and use tests, but there are complex rules about periods of nonqualified use. Might want to consult with a CPA before making any big decisions.

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William Schwarz

•8M

If this was supposed to be your primary residence but you had to rent it out, don't forget that if you do move into it later, the "2 out of 5 years" rule for capital gains exclusion ($250k single/$500k married) gets complicated. The IRS has specific rules about "non-qualified use periods" that can reduce your exclusion. You should definitely claim the mortgage interest deduction against rental income now, but just be aware it might affect your future tax situation if you sell or convert it back to personal use.

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William Schwarz

•8M

Keep absolutely everything! Save all records related to: - Your original purchase (closing documents, original intent to occupy) - Any emails or documentation showing your plans changed due to job loss - All rental income and expense records - Any improvements or repairs (with receipts) - Property tax statements showing separate land/building values - Documentation of when you begin using it as your primary residence Also consider getting a professional appraisal when you convert it back to personal use. Having solid documentation of the property's value at each conversion point can save you thousands in taxes when you eventually sell.

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