You can claim a deduction for mortgage interest you pay either on your primary residence or second home or on a rental property, but where you report it depends on which type it is. Regardless of whether you're deducting mortgage interest on your home or a rental property, it never directly appears on its own line of Form 1040.
Home Mortgage Interest
The home mortgage interest you pay during the year goes on either line 10 or line 11 of Schedule A, the list of itemized deductions. Use line 10 if you received a Form 1098 from your lender that shows you how much interest you paid during the year. If you didn't receive a Form 1098, such as if you have a private mortgage or you paid less than $600 in interest, report your home mortgage interest on line 11 of Schedule A. If the mortgage is with the previous owner, write the person's name, address and Social Security number next to line 11.
Itemizing on Form 1040
To claim your home mortgage interest, you must itemize and give up your standard deduction. When you fill out your Form 1040 tax return, report your total itemized deductions on line 40 instead of writing your standard deduction on this line.
The total of your itemized deductions, which includes your deductible mortgage interest, is found on line 29 of Schedule A. If your standard deduction is larger than your itemized deductions, you shouldn't itemize.
Rental Mortgage Interest
Rental mortgage interest is deductible even if you don't itemize, but you still don't report it directly on Form 1040. Instead, use Schedule E to report your rental income and expenses. If you paid the rental mortgage interest to a financial institution and received a Form 1098, report the amount on line 12 of Schedule E. Otherwise, it goes on line 13.
Only the interest paid for the particular tax year is deductible. Prepaid interest must be deducted in the tax year to which the payment is applied. For example, if you prepaid January 2018's interest in December 2017, you have to wait until your 2018 tax return to deduct that interest.
Rental Income on Form 1040
Once you've entered all of your rental income and expenses on Schedule E, use Schedule E to figure your net real estate income or loss. From there, copy the net income or loss from line 26 of Schedule E to line 17 of your Form 1040. The total already includes a reduction for your mortgage interest expense, so you don't separately deduct it on Form 1040.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."