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HL1
Level 1

How to deduct mortgage interest payment secured with primary residence used to purchase Rental Property?

When we first purchased the rental property, we used the Line of Credit from our primary residence as down payment and secure a mortgage using the rental property.  However, we refinanced the rental mortgage using primary residence as lien since the interest rate is lower with primary residence.  We received two 1098(s).  Both indicate the Primary residence is the property securing mortgage.

Can we Report Both mortgage payments, the original Line of Credit and the refinanced loan with primary residence, on the Rental Property Income section as mortgage expense? Or should these be reported as mortgage payment in the Deductions section?


3 Replies
Employee Tax Expert

How to deduct mortgage interest payment secured with primary residence used to purchase Rental Property?

You can only deduct interest on a rental property in the rental property section if the rental home secures the loan. 

If your primary home is the home that secures the rental, then deduct the interest on the personal side under Deductions and Credits. 

HL1
Level 1

How to deduct mortgage interest payment secured with primary residence used to purchase Rental Property?

When to apply the rule on
"deduct the interest based on the property secure the loan"
VS
"IRS publication 535, section 4 Interest - In general, you allocate interest on a loan the same way you allocate the loan proceeds. You allocate loan proceeds by tracing disbursements to specific uses." since the loan proceeds were used to refinance the rental property?
Level 1

How to deduct mortgage interest payment secured with primary residence used to purchase Rental Property?

As of 2018, a mortgage secured by your primary residence is deductible on your personal taxes only if it the proceeds were use to buy, refinance, or improve your primary residence. You cannot (and Turbotax 2018 asks!) deduct a mortgage used for any other purpose on your personal taxes. Instead, you need to allocate the interest to the rental property and list it there... with an explanation.