How to determine Mortgage Interest Deduction with part year rental

[PDS_22066]

In summary:
Property #1: $12,030.85 mortgage interest with average debt of $480,020.50 for 2025
Property was primary residence from 1/1/2025 to 1/31/2025 (30 days) before moving out to convert to rental. Property was available to rent from 2/17/2025 (335 days)

Property #2: $64,779.26 mortgage interest with average debt of $1,035,619.76 for 2025
Property was purchased on 1/31/2025 when it became new Primary residence

Question:
I understand I need to prorate the Interest and property taxes for Property #1 between Schedule A and Schedule E accordingly per the days rented.

However, when determining the mortgage interest deduction limit, if I enter the 1098s for Property #1 (prorated) and Property #2 under income, the $480,020.50 average debt significantly reduces the limit of deductible mortgage interest even though I have prorated the mortage interest paid for Property #1.

How should I correctly adjust the $480,020.50 mortgage debt for Property #! when prorating the 1098 so that it doesn't limit the maximum amount of mortgage interest I can deduct - I am filing married filed jointly.

thanks!

[PatriciaV · Accepted solution]

Because your rental property was used as a personal residence for only 30 out of 365 days (less than 10%), it doesn't qualify for the home mortgage deduction. Instead of entering the 1098 information for that property under Schedule A, enter the full amount for Schedule E (which is not limited). Then you can report only your second 1098 for Schedule A (still subject to the $750,000 limit).

Remember to report the 30 days as personal use days for the rental property.

See also IRS Pub 936 Second Home rented out

[edited 1/28/2026 | 8:08 am]