Can I switch what rental property I deduct mortgage interest on?

[k9nkid]

I have 2 rental properties. Prop A was a 2nd home that was owned free and clear. We took a loan on A and bought B. We rent B out and have been deducting the mortgage interest against that property. Now we are renting A out ~ Can I switch and take the mortgage interest deduction against A. The loan is against that house.

[Coleen3 · Accepted solution]

You should have been deducting it against Property A all along. To be deductible, the loan must be secured by your home.

Home Mortgage Interest

This part explains what you can deduct as home mortgage interest. It includes discussions on points and how to report deductible interest on your tax return.

Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan.

You can deduct home mortgage interest if all the following conditions are met.

• You file Form 1040 and itemize deductions on Schedule A (Form 1040).
• The mortgage is a secured debt on a qualified home in which you have an ownership interest. Secured Debt and Qualified Home are explained later.

Second home rented out.

•  If you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home. You must use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer. If you don't use the home long enough, it is considered rental property and not a second home. For information on residential rental property, see Pub. 527.

• https://www.irs.gov/publications/p936#en_US_2017_publink1000229900> 
  

[k9nkid]

we now rent A out full time.

[k9nkid]

also the loan was used for the purchase of the rental according to what I read I was allowed to deduct the interest against the property purchased.  I've been audited on it and it was allowed

[Coleen3]

Ok, I can't argue with an IRS audit. Deduct it on property A.

[k9nkid]

Thank you ~ sometimes I don't think the IRS auditors know themselves. I hope I didn't come across has snarky ~ it is just confusing with all the information out there that supports multiple interpratations

[Coleen3]

No, not at all. If you passed an audit, good for you! It is frustrating when you are right but still don't pass the audit.