Understanding Mortgage Interest Deduction for Primary and Second Home - Tax Benefits

Thanks for the explanation! Quick follow-up - if I rent out my second home occasionally through Airbnb or something similar, does that change how the mortgage interest deduction works? Also, do property taxes on both homes get included in the SALT cap or is that separate?

If you rent out your second home part-time, it gets a bit more complicated. You'll need to allocate the mortgage interest between personal use and rental use. The personal portion remains as an itemized deduction, while the rental portion becomes a business expense reported on Schedule E. The allocation is typically based on the number of days rented versus personal use days. Property taxes for both homes do count toward the $10,000 SALT (State And Local Tax) cap. This limit applies to the combined total of your state/local income taxes and property taxes. For many higher-income earners, especially in high-tax states, this $10,000 cap is easily reached.

Does this tool actually give personalized advice about mortgage deductions? I've been told different things by different tax preparers about my vacation home mortgage.

I'm a bit skeptical of AI tax tools. How does it handle more complex situations like if you're using the second home as a rental part of the year? Does it address phaseouts for high income earners?

Yes, it gives truly personalized analysis of your specific mortgage situation. You upload your mortgage statements and it identifies exactly what's deductible for your unique circumstances - primary residence, second home, or mixed-use properties. The tool handles complex situations like partial-year rentals very well. It applies the correct allocation formulas based on personal vs. rental use days. It also factors in income phaseouts and alternative minimum tax implications for high earners, which is something many preparers miss. It's particularly good at identifying when the vacation home qualifies as a second residence vs. when it falls under rental property rules.

Wait, how does this actually work? The IRS phone lines are impossible to get through - are you saying this somehow jumps the queue or something?

Yeah right. No way this actually works. I've spent literal DAYS trying to reach the IRS about a mortgage interest issue. If this service could actually get me through, it would be worth its weight in gold, but I'm highly doubtful.

It does work - it uses an automated system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call back connecting you directly to them. It doesn't jump any lines or do anything improper - it just handles the painful waiting process so you don't have to sit there listening to hold music for hours. The service is particularly useful for mortgage interest questions because those often require speaking to a human at the IRS who can interpret how the rules apply to your specific situation. Many of these questions are too nuanced for the general information on the IRS website, especially when dealing with multiple properties or mixed-use scenarios.

How do you properly document personal use vs. rental use? Do I need to keep some kind of log or calendar?

Yes, keeping a detailed log is absolutely essential. I recommend creating a calendar where you track every single day the property is used - whether for personal use, rental use, or maintenance. Note who used the property and the purpose. For personal use days, include use by you, your family members, or anyone who pays less than fair market rent. For rental days, keep copies of all rental agreements or platform bookings. The IRS can be particularly interested in this documentation if they question your deduction allocations, especially for properties that are rented out for part of the year. Take photos during your personal stays as additional supporting evidence.

Could you explain more about the LLC complication? I was thinking of doing the same thing with my vacation property for liability reasons but hadn't considered tax implications.

When you hold property in an LLC, the mortgage interest may not qualify for the personal residence mortgage interest deduction since the LLC is technically the borrower, not you personally. The IRS generally requires that you be personally liable for the mortgage debt for it to qualify as qualified residence interest. There are some workarounds - like if you personally guarantee the mortgage or if the LLC is disregarded for tax purposes (single-member LLC) - but it definitely complicates things. You might end up having to treat the interest as a business expense instead, which has different limitations and requirements. I'd strongly recommend consulting with a tax professional before structuring your vacation home purchase through an LLC if you're counting on the mortgage interest deduction. The liability protection benefits might not be worth losing the tax advantages, depending on your situation.

This is really helpful timing information! I hadn't thought about the closing date impact. Quick question - when you mention points being deductible at closing, is that the full amount in the year paid, or do they need to be amortized over the life of the loan like some other closing costs? Also, regarding the mortgage insurance premium phaseout, does that apply to both conventional PMI and FHA mortgage insurance premiums, or are there different rules for each type? @f4ad134a031c Thanks for bringing up these additional considerations - definitely going to factor the timing into our purchase decision.