What this line means
Interest paid on loans related to the rental property that do not come from a bank or financial institution. The most common example is interest on a seller-financed mortgage, where you bought the property directly from the previous owner and make payments to them. Credit card interest used exclusively for rental property expenses and interest on personal loans used to fund rental improvements also go here.
Does this apply to you?
- You purchased a rental property through seller financing and pay interest to the former owner
- You used a personal loan specifically to fund rental property improvements
- You carry a credit card balance for rental property expenses
- You borrowed money from a private lender to purchase or improve a rental property
Easy to overlook
Seller-financed mortgage interest requires you to report the seller’s information If you pay mortgage interest to an individual (seller financing), you must provide the seller’s name, address, and Social Security number on Schedule E. You are also required to file Form 1098 with the IRS reporting the interest paid, just as a bank would. Failing to file the 1098 means the interest deduction is disallowed. 1 IRS Publication 527 — Residential Rental Property
Credit card interest is deductible if the charges are 100% rental-related If you have a credit card used exclusively for rental property expenses — supplies, repairs, materials — the interest on that card balance is deductible on line 13. The key is exclusivity. If the card has personal charges mixed in, you must allocate interest between personal and rental use. Most landlords assume credit card interest is never deductible and miss this deduction entirely. 2 General filing pattern — seller-financed mortgage interest missed
Watch out for this
Putting bank mortgage interest on this line instead of line 12. Line 12 is specifically for interest paid to banks, savings institutions, and other financial institutions. Line 13 is for everything else — private lenders, seller financing, personal loans. Mixing them up does not change your total deduction, but it triggers inconsistencies if the IRS cross-references your Form 1098 against line 12.
Footnotes
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IRS Publication 527, Residential Rental Property, Interest Paid to Individuals. https://www.irs.gov/pub/irs-pdf/p527.pdf ↩
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IRS Publication 535, Business Expenses, Interest. https://www.irs.gov/pub/irs-pdf/p535.pdf ↩