How to properly deduct mortgage interest on primary residence vs rental investment property

Thanks for the explanation! So just to double check - the $750K mortgage on my primary and the $250K mortgage on my rental don't somehow combine to push me over the $750K limit? They're handled completely separately, right? Also, I've been told I might need to file a Form 8829 for the rental - is that correct or does it all just go on Schedule E?

They're handled completely separately. The $750K limit only applies to qualified residence interest for your primary and/or second home. Your rental property mortgage is a business expense on Schedule E and isn't subject to that limit at all. You don't need Form 8829 for rental properties. That form is only for home office deductions for self-employed individuals. For rental properties, everything goes on Schedule E - the mortgage interest, property taxes, insurance, repairs, management fees, depreciation, and any other rental-related expenses.

How does taxr.ai handle depreciation calculations? I always get confused about how to figure out the land vs building value split. Does it help with that?

Is this actually legit? I've been burned by tax "helpers" before that just regurgitated basic info I could find anywhere. Did it actually catch anything specific to your situation or just generic advice?

It actually walks you through the land/building split by analyzing your property tax assessment or suggesting methods to determine a reasonable allocation. In my case, it used county records to suggest an 80/20 building-to-land ratio that was perfectly acceptable to the IRS. Yes, it's definitely legit! What surprised me was that it found a repair expense I had misclassified as an improvement (which would have been depreciated over 27.5 years). By correctly categorizing it as a repair, I was able to deduct the full amount in the current year, saving me over $900 in taxes. It analyzes your specific documents and situation, not just generic advice.

How does this actually work? I thought getting through to the IRS was impossible these days. Is this just another paid service that puts you on hold for you?

Yeah right... there's no way they can get you through to the IRS that quickly. I've been calling for WEEKS about my rental property issues. This sounds like a scam to charge people for something that doesn't work.

It uses priority callback technology. Instead of you waiting on hold, their system navigates the IRS phone tree and waits in the queue for you. Once they reach an agent, they call you to connect. It's basically professional-level hold waiting. It's definitely not a scam. I was extremely skeptical myself, but after waiting on hold for 3+ hours multiple times with no success, I gave it a shot. They called me back in about 15 minutes with an IRS agent ready to help. I finally got confirmation about how to handle my complex rental property situation. I know it sounds too good to be true, but it really does work.

Wait, so if my SALT is already at the $10K cap from my state income taxes, I still get to deduct ALL of my rental property taxes separately? I think I've been doing this wrong for years...

Yes, that's exactly right! Your rental property expenses, including property taxes, aren't subject to the $10K SALT limitation. They're business expenses reported on Schedule E. So if you've already hit the $10K SALT cap with your state income taxes alone, you still get to deduct 100% of your rental property taxes on Schedule E. They're completely separate deductions. This is one of the tax advantages of owning rental property that many people overlook.

This happened to me too! The bank rep insisted it was fine to have them combined but my tax software kept rejecting it. How long did it take to get yours fixed?

It took about 2 weeks to get the corrected 1098s issued. I had to escalate to a supervisor because the first rep didn't understand why it mattered. Pro tip: when you call, ask specifically for the "tax document department" - they understand the issue better than regular customer service. Also get the corrected forms emailed to you since they often take forever to mail them out.

This is really helpful! I'm new to rental property ownership and didn't realize there were so many deductible expenses beyond just the mortgage interest. Quick question about the depreciation - do I need to calculate that myself or does my tax software typically handle it if I enter the property details correctly? Also, for the mileage tracking, is there a minimum number of trips that makes it worthwhile to track, or should I log every single trip to the property?

Good tax software will calculate depreciation automatically once you input the property details (purchase price, date placed in service, land vs building allocation). Most use the standard 27.5 year straight-line method for residential rental property. Just make sure you have your closing statement handy to get the accurate purchase price and any settlement costs that should be added to your basis. For mileage, track every trip - there's no minimum threshold and it adds up faster than you think. I use a simple phone app that automatically logs trips when I drive to my rental property. Even if it's just $20-30 worth of mileage deductions, that's money in your pocket. Plus the IRS loves detailed records if you ever get audited. Also don't forget about trips for property management activities like meeting contractors, picking up supplies, or showing the property to prospective tenants - those all count too!

This is really valuable information about passive activity loss rules that I hadn't fully considered! I'm definitely not a real estate professional (I have a regular W-2 job), so this passive loss limitation could definitely apply to me. My AGI is around $120K, so I'm in that phase-out range for the $25K exception. Does this mean I can only use a portion of any rental losses against my regular income? And when you mention points being amortized over the loan life for rental properties - is that something I should be tracking annually, or does it just automatically reduce my deductible interest each year? Also, I'm curious about the real estate professional qualification - what does someone need to do to meet that standard? Is it worth pursuing if you're serious about rental property investing?

At $120K AGI, you're right in the phase-out range. The $25K exception phases out by 50 cents for every dollar over $100K, so at $120K you'd be limited to $15K in rental losses against ordinary income ($25K - ($120K-$100K)/2). Any losses beyond that carry forward. For the points on your rental property loan, you need to track them annually. If you paid $2,000 in points on a 30-year rental property mortgage, you'd deduct $66.67 each year ($2,000 ÷ 30 years) as additional interest expense on Schedule E. It doesn't reduce your regular mortgage interest - it's a separate line item. The real estate professional qualification is tough to meet with a W-2 job. You need to spend more than 750 hours per year in real estate activities AND it must be more than half your working time. So if you work 2,000 hours at your regular job, you'd need over 2,000 hours in real estate to qualify. Most people with day jobs can't realistically meet this standard unless they're truly running a substantial real estate business.

This is excellent advice about timing expenses! I never thought about the strategic aspect of when to pay certain rental property expenses. As someone just getting started with rental property investing, this kind of year-end tax planning is something I definitely need to learn more about. Your point about keeping actual loan statements is spot-on too. I've heard horror stories about lenders making errors on 1098 forms, and having backup documentation seems like a no-brainer. Do you recommend keeping digital copies or physical copies for tax records? And how far back should I keep these records for rental properties? Also, when you mention prepaying expenses like insurance premiums - are there any expenses that can't be prepaid for tax purposes, or are most rental property expenses fair game for this kind of timing strategy?