The IRS allows landlords to borrow money for their rental property business and then deduct any interest that may be charged by the lender as it’s paid back.
It is important to note that the principal portion is not permitted as a deduction. The IRS only allows the principal amount (of newly purchased property and improvements) to be depreciated over 27.5 years.
The following is a list of the most common types of landlord deductible interest payments:
Important: If you borrow money for a rental property, but don’t use it (say for 6 months) and it sits in a bank, you cannot deduct the interest payments as you pay back the loan (for those 6 months).