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If you take out mortgage on your primary residence, you will not be able deduct the mortgage interest as rental expense but you will have to deduct it as personal on schedule A. If your total income is over 150K you will not be able to deduct any rental losses so deducting the interest as personal is more advantageous. If your total income is less than 100K, you could claim the full standard deduction and also deduct the entire mortgage interest as rental expense so it would be more beneficial to take out mortgage on the rental property than primary residence. Another thing to consider is the fact that your house is already paid off. Do you really want to put another mortgage on your home and risk foreclosure or repossession if something unexpected happened and you will not be able to make the payments?