Is rental mortgage interest deductible?

The short answer

Publication 527 lists mortgage interest paid to banks, and other interest, among the most common rental expenses. The rule in the Interest expense paragraph is short: you can deduct mortgage interest you pay on your rental property. Most of the real questions are about what counts as interest on the rental and when the deduction is allowed, so the rest of this page walks through the situations the publication actually addresses.

It helps to separate three kinds of money that often travel together at closing and afterward. Interest is deductible as a rental expense. Points are also interest, but prepaid, so they are deducted over time. Other costs of getting the loan, such as commissions, abstract fees and recording fees, are not interest at all. The publication calls them capital expenses that become part of your basis in the property.

When the loan is bigger than the rental

The publication draws one firm line. When you refinance a rental property for more than the previous outstanding balance, the part of the interest allocable to loan proceeds not related to rental use generally cannot be deducted as a rental expense. The same idea applies to points: its example refinances a $100,000 balance into a $120,000 loan and uses the extra $20,000 to buy a car, and the points allocable to that $20,000 are treated as nondeductible personal interest.

The practical lesson is to keep a paper trail. If you take cash out of a rental to fund something else, you now have a loan with a rental part and a personal part, and only the rental part is a Schedule E expense. The publication does not prescribe a formula for the split in this passage, so keep the closing statement and the record of where the extra money went, and ask a preparer how to allocate it.

Points: a worked example from the publication

Points are charges paid by a borrower to take out a loan. The publication treats them as prepaid interest, so you generally cannot deduct the full amount in the year you pay them. The deduction follows the original issue discount (OID) rules. The first test is whether the OID is de minimis, meaning less than one-fourth of 1 percent (0.0025) of the stated redemption price at maturity times the number of full years in the loan term.

The publication's example: Carol borrows $100,000 on January 1, 2025 for 30 years to buy a rental and pays $1,500 in points. The de minimis amount is $100,000 x 30 x 0.0025 = $7,500. Her $1,500 is lower, so the OID is de minimis, and she can choose among four methods: constant yield, straight line over the loan term, in proportion to stated interest payments, or all at maturity. On the straight line method she deducts $50 a year for 30 years. The calculator above runs the same test on your numbers.

If the OID is not de minimis, the constant-yield method is required. For year one you multiply the issue price (amount borrowed minus points, $98,500 in the example) by the yield to maturity (10.2467 percent), then subtract the stated interest paid ($10,000). That gives $98,500 x 0.102467 = $10,093 minus $10,000, or $93 deductible in 2025. For year two you add the $93 already deducted to the issue price and repeat, which gives $103 for 2026. If the loan ends early through a refinance, prepayment or foreclosure, any remaining points may be deductible in that year, except that a refinance with the same lender generally pushes them into the new loan's term.

Form 1098 and shared mortgages

If you paid $600 or more of mortgage interest on the rental to any one person, you should receive a Form 1098 or a similar statement. If you and at least one other person (other than your spouse, if you file jointly) were liable for the mortgage and paid interest, and the other person received the Form 1098, you report your share of the interest on Schedule E, line 13. Attach a statement with the name and address of the other person and write See attached on the dotted line next to line 13.

When the property is partly personal

Renting part of your property means dividing shared expenses as if you owned two properties. The publication's duplex example has equal-size units and $10,000 of mortgage interest for the entire property: $5,000 goes on Schedule E and the other $5,000 can be claimed on Schedule A if you itemize. Any reasonable method works; the two most common are number of rooms and square footage.

If you convert your former home to a rental partway through the year, only the part of the year it was held for rental counts as a rental expense, and the interest for the personal months can be included when figuring your Schedule A deduction. If you use a vacation home personally enough that it counts as a home, mortgage interest is one of the items that Worksheet 5-1 allows in full against rental income, while excess interest is deductible only up to the remaining rental income.

Where interest sits in the whole picture

In the publication's own full-year example, a rental house bought for $135,000 produces $13,500 of rent, with $8,000 of mortgage interest and $1,350 of other expenses, leaving $4,150 before depreciation. Straight line depreciation over 27.5 years then takes it to a $213 loss. Mortgage interest was the largest deduction, which is typical for a newly financed property. For the depreciation side of that picture, see the rental property depreciation calculator; to see how a loss is treated, read are rental losses limited.

Sources

• IRS Publication 527, Residential Rental Property (2025): Rental Expenses (Interest expense, Points, Expenses paid to obtain a mortgage, Form 1098), Special Situations (Renting Part of Property, Property Changed to Rental Use). Read November 2, 2026.

Edition read: Publication 527 (2025), for use in preparing 2025 returns. Dollar limits and rates in this publication are for 2025; check the current publication and form instructions for your tax year. Where a figure is described as our arithmetic, it applies the publication’s rule to a made-up example. This page summarizes the publication and does not replace it.