Under IRC §163, mortgage interest on a primary or secondary home is deductible on Schedule A (itemized deductions) for loans up to $750,000 ($375,000 if married filing separately). For business or rental properties, 100% of mortgage interest is deductible on Schedule E or C.
Getting the deduction right is not just about whether it is allowed — it is about how you set it up.
For personal homes, you must itemize deductions. For rental/business properties, deduct on Schedule E or C.
Your lender sends Form 1098 showing annual mortgage interest paid.
Personal: Schedule A. Rental: Schedule E. Business: Schedule C or entity return.
Do not deduct mortgage interest above the $750,000 loan cap on personal residences.
If you have a home office, a portion of mortgage interest is deductible as a business expense under §280A.
When structured correctly, this deduction can significantly reduce your taxable income.
Here is how this deduction typically works in real situations:
A freelancer has a $500,000 mortgage at 7% = $35,000 interest/year and a 15% home office.
An LLC owns a rental property with $40,000 in annual mortgage interest.
Owner deducts mortgage interest above the $750,000 cap.
Key Takeaway: The difference between a valid deduction and a denied one usually comes down to documentation, usage percentage, and proper structuring. The same expense can be fully deductible, partially deductible, or not deductible at all — depending on how it is handled.
Yes -- on primary and secondary homes up to $750,000 in loan balance on Schedule A. Rental and business property mortgage interest is 100% deductible.
Yes -- 100% of mortgage interest on a rental property is deductible on Schedule E.
