Your rental income is $15,000 ($1,250 x 12). Your mortgage payment is not used to determine your income/loss. Rather, you will deduct the interest and property tax you paid, as well as any other deductible expenses related to your rental. The portion of your mortgage payment that is applied towards principal is not deductible. You will also need to file a state tax return for the state where your rental is located (if they have a state income tax).
