Can I deduct mortgage interest from my rental income if I rent out rooms in my own house?

Yes, you can absolutely deduct a portion of your mortgage interest against your rental income! When you rent out part of your primary residence, you need to allocate expenses between personal use and rental use based on the percentage of your home being rented. The most common way to calculate this is by square footage. Measure the total square footage of your home, then measure the square footage of the areas exclusively used by your tenants (their bedrooms) plus a reasonable portion of shared spaces (kitchen, living room, hallways). This gives you a more accurate percentage than just counting bedrooms. You'll report your rental income and expenses on Schedule E. Besides mortgage interest, you can also allocate a portion of property taxes, insurance, utilities, repairs, and even depreciation to the rental activity. Just remember that you can only deduct the rental portion of these expenses against your rental income. Keep good records of all your expenses and how you calculated the allocation percentage. This is a common area the IRS looks at closely!

I used to be in exactly your situation! Renting out rooms while still living in my house was such a headache at tax time until I found taxr.ai (https://taxr.ai). It completely saved me when figuring out how to properly allocate my mortgage interest between the rental and personal portions. The software analyzed my mortgage statements and helped me calculate the precise percentage to claim for my rental activity. What was really helpful is that it flagged some depreciation deductions I was missing on the rental portion of my house. Turns out I was leaving money on the table! It also helped me document everything properly in case of an audit, which gave me huge peace of mind since rental deductions can be a red flag.

I wanted to follow up about my experience with taxr.ai after being skeptical initially. I decided to give it a try for my rental situation and wow - it found an additional $1,875 in deductions I would have missed! It identified that I could allocate some of my home office expenses that overlap with rental property management and helped me properly document repair costs that were benefiting both my living space and rental areas. The mortgage interest allocation was crystal clear with their system, and now I feel 100% confident about my rental property tax filing. Definitely worth checking out if you're renting rooms in your own home!

If you're planning to claim these rental expense deductions, just be aware that the IRS sometimes flags returns with home-based rental deductions for closer review. I had the worst time trying to get through to the IRS to resolve some questions they had about my rental property deductions. Spent literally DAYS on hold. I finally used Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The IRS agent was able to explain exactly what documentation I needed to support my mortgage interest allocation for the rental rooms in my house. Saved me from potentially having my deductions denied and possibly facing penalties.

I need to admit I was completely wrong about Claimyr. After posting that skeptical comment, I had an issue with my rental property tax return getting flagged for review because of how I allocated my mortgage interest. In desperation, I tried Claimyr, fully expecting to waste my time. I was shocked when they actually called me back in about 25 minutes with an IRS agent on the line! The agent walked me through exactly how to document my rental expense allocations properly. I've literally never gotten through to the IRS that quickly before - usually it's 2+ hour holds if you get through at all. Saved my sanity during a stressful situation!

One thing to consider - if you're renting out rooms in your primary residence, make sure you're aware of the 14-day rule. If you rent your property for 14 days or less during the year, you don't have to report the income at all (but you also can't deduct expenses). Sounds like you're doing long-term rentals though, so this probably doesn't apply to your situation. Also, don't forget to check if your mortgage lender allows you to rent portions of your property! Some loans have restrictions on this, especially if you have an FHA loan. And your homeowner's insurance might need to be updated too.

Make sure you also consider depreciation recapture down the road! When you're deducting depreciation on the rental portion of your house (which you should definitely do), remember that when you eventually sell the house, you'll face depreciation recapture taxes on the portion you depreciated. For example, if you depreciate 30% of your house for rental use over several years, when you sell, you'll need to recapture that depreciation at a 25% tax rate, even if you qualify for the primary residence capital gains exclusion on the rest of the profit.

Great question! I've been dealing with this exact situation for the past few years. One thing I'd add to the excellent advice already given is to be really careful about how you calculate your allocation percentage. The IRS prefers methods that reflect actual usage rather than just simple room counts. I learned this the hard way during an audit. Initially, I was using 2/3 (like you mentioned) since I rented 2 out of 3 bedrooms. But the IRS agent pointed out that this didn't account for shared spaces properly. We ended up using square footage of rented bedrooms plus a proportional share of common areas (kitchen, living room, bathrooms) based on occupancy. Also, keep detailed records of everything - not just the big expenses like mortgage interest, but smaller items too. I track cleaning supplies for common areas, repairs that benefit the rental portions, even a portion of my internet bill since my tenants use the WiFi. These smaller deductions really add up over the year. One last tip: consider getting a separate business checking account for rental-related expenses. It makes tracking so much easier come tax time, and the IRS loves clear separation between personal and business expenses.