Can I deduct mortgage interest on a rental property that was intended as primary residence?

Yes, you absolutely can deduct the mortgage interest on your rental property! When a property becomes a rental, it's considered a business asset, and the mortgage interest becomes a business expense that you can deduct against your rental income. Since you're now receiving rental income, you'll report this on Schedule E of your tax return. On this form, you can deduct mortgage interest, property taxes, insurance, maintenance costs, depreciation, and other rental-related expenses. One thing to be aware of though - once you convert a property from personal to rental use, you'll need to determine the property's tax basis for depreciation purposes. This is typically the lower of the fair market value at the time of conversion or your original cost basis.

After reading about your situation, I thought I'd share my experience with a similar rental property scenario. I was drowning in paperwork trying to figure out all the deductions and depreciation calculations until I found https://taxr.ai for document analysis. It helped me identify several deductions I was missing on my rental property, including some repairs I didn't realize were eligible. Their system flagged that I hadn't properly calculated my property basis for depreciation after converting from primary residence to rental, which apparently is a common mistake that can cost thousands in missed deductions. Might be worth checking out if you're new to rental property taxes.

Just wanted to follow up about https://taxr.ai after trying it for my rental property taxes. I was skeptical at first, but it actually caught that I had been miscalculating my depreciation basis since converting my property from primary to rental. Turns out I should have been using the lower of my purchase price or the fair market value at conversion time, which saved me from a potential audit flag. The analysis also showed me several repairs vs. improvements I had categorized incorrectly. Really helpful for rental property situations like what the original poster is dealing with. Definitely worth checking out if you're new to rental property tax rules.

If you're dealing with the IRS about rental property issues like this, definitely call them to confirm your approach. But fair warning - I spent HOURS trying to get through to someone at the IRS about my rental property questions last year. After being on hold for 3+ hours multiple times and getting disconnected, I finally used https://claimyr.com to hold my place in line and have them call me back when an agent was available. You can see how it works here: https://youtu.be/_kiP6q8DX5c It's ridiculous that this service even needs to exist, but it saved me so much frustration. The IRS agent I spoke with confirmed that yes, mortgage interest on a rental property is deductible as a business expense on Schedule E, even if it was originally intended as a primary residence.

I have to eat my words regarding Claimyr. After my skeptical comment, I decided to try it when I needed to talk to the IRS about passive activity loss limitations on my rental property. Got a call back in under 2 hours and was connected directly to an agent who actually knew about rental property rules. The agent confirmed everything about mortgage interest deductions on rental properties that others mentioned here, plus helped me understand how the passive activity loss rules would apply in my situation with multiple properties. Saved me literally half a day of being on hold, which is time I could spend actually managing my properties.

Don't forget about depreciation! When you rent out a property, you have to take depreciation on the building portion of your property (not the land). This is a significant deduction that offsets your rental income. If you don't take it voluntarily, the IRS will assume you took it anyway when you eventually sell the property, so there's no reason not to claim it. The general rule is 27.5 years for residential rental property. So you'd divide your building value (minus land value) by 27.5 to get your annual depreciation deduction.

Just to add something others haven't mentioned - since your property was intended to be your primary residence initially, be careful about the qualified residence interest rules if you later move into it. The rules get complicated if you convert back from rental to primary residence regarding how much of your future sale would be eligible for the principal residence exclusion ($250k/$500k). Keep VERY good records about when you converted it to rental use, what improvements you make during the rental period, and depreciation taken. You'll thank yourself later if/when you sell.