Yes, mortgage interest on a rental property is tax deductible, and unlike the deduction on your primary residence, there is no dollar cap. Every dollar of interest you paid on a rental mortgage last year reduces your taxable rental income.
The confusion usually comes from mixing up two different deductions.
- The primary residence deduction lives on Schedule A and is capped at $750,000 of mortgage debt.
- The rental property deduction lives on Schedule E and has no cap.
Where mortgage interest goes on your tax return
Rental mortgage interest is a Schedule E expense, not Schedule A. This distinction matters for two reasons.
First, Schedule E deductions reduce your net rental income directly. And they're available whether or not you itemize your personal deductions. However, Schedule A deductions only help if your total itemized deductions exceed the standard deduction.
Second, there's no cap. A landlord with three rentals carrying $1.2 million in mortgage debt can deduct all of the interest on Schedule E. It's the same form where you deduct lawn care, pest control, repairs, and other operating expenses.
| Property type | Where to deduct | Cap | Requires itemizing? |
|---|---|---|---|
| Primary residence | Schedule A | $750,000 of mortgage debt | Yes |
| Rental property | Schedule E, line 12 | No cap | No |
A real-numbers example
You own a single-family rental in Columbus, Ohio. You bought it in 2022 for $285,000 with a 20% down payment and a $228,000 mortgage at 6.5%.
In 2025, you paid roughly $14,700 in mortgage interest.
Purchase price: $285,000 Down payment (20%): $57,000 Loan amount: $228,000 Interest rate: 6.5% Approximate 2025 interest: $14,700 Rental income (2025): $26,400 Less mortgage interest: -$14,700 Remaining for other expenses: $11,700
That $14,700 comes directly off your rental income before you calculate what's taxable.
At a 24% federal rate, it's worth roughly $3,500 in actual tax savings for the year.
Your Form 1098 from the lender will show the exact figure. If you paid more than $600 in interest to a single lender during the year, they're required to send one.
Only interest is deductible, not principal
Your monthly mortgage payment covers two things: principal (paying down the loan balance) and interest (the cost of borrowing). Only the interest is deductible.
The tracing rule: what happens when the loan isn't secured by the rental
The IRS doesn't just look at what a loan is secured by, but how you used the money.
If you pull a home equity line of credit against your primary residence and use those funds to buy a rental property or fund improvements on one, the interest follows the use. It's rental interest, deductible on Schedule E, even though the loan is secured by your home.
This is governed by the interest tracing rules under IRS Publication 550 and IRC Section 163. The rule: deductibility of interest depends on where the money went, not what property you borrowed against.
Mixed-use property: how to split the deduction
If you live in part of a property and rent out the rest, you can only deduct the rental portion of the mortgage interest.
The IRS requires allocation by square footage. If you own a duplex, live in one unit (900 sq ft), and rent the other (900 sq ft), 50% of your mortgage interest is deductible on Schedule E. The other 50% is personal and belongs on Schedule A if you itemize.
Total duplex mortgage interest (2025): $12,000 Rental unit square footage: 900 sq ft Total square footage: 1,800 sq ft Rental percentage: 50% Deductible on Schedule E: $6,000 Personal portion (Schedule A): $6,000
This is the calculation that trips up house hackers most often. If you're running a 50/50 duplex and deducting 100% of the interest on Schedule E, that's an error the IRS can flag.
What about loan origination fees and points?
Unlike your primary residence, where points may be deductible in the year you paid them, rental property points must be amortized over the life of the loan.
On a 30-year mortgage, that means 1/30th of the points per year. If you paid $2,280 in points (1% of a $228,000 loan), you deduct $76 per year, not $2,280 upfront.
What records to keep
Keep the following for each rental property:
- Form 1098 from your lender (required if you paid $600 or more in interest)
- Mortgage statements showing the interest/principal breakdown for the year
- Settlement statement from closing if you paid points (HUD-1 or Closing Disclosure)
- Records of any additional loans secured by or used for the rental
If you have multiple properties with multiple lenders, keep one set of documents per property, filed by address. It makes Schedule E preparation significantly faster.
How FourCasa tracks this for you
When your mortgage payment hits the bank account connected to FourCasa, Casey separates the interest from the principal automatically and tags the interest as a Schedule E expense. You don't have to remember which line it goes on or cross-reference your Form 1098 in April.
If you have a mixed-use property, set your rental percentage once. FourCasa applies it to every transaction going forward, so the allocation happens without you recalculating it each month.
By tax season, your Schedule E mortgage interest line is already populated and reconciled against your 1098s. Start your free 14-day trial, no credit card required.
