Ask Dr. Don By Don Taylor, Ph.D., CFA • Bankrate.com

Mortgage interest deductions

Dear Dr. Don,
If I own a home and still have a mortgage, can I buy another home and write that interest off as well. I would like to move to a larger house, but I would like to keep my first house as a rental property. I am assuming that I would have to claim the rent as income, but can I write both of my mortgages's interest off on my taxes?
Thank you,
Troy Title

Dear Troy,
With a rental property, there's no question that you can use the mortgage interest deduction on your taxes. It's a business expense and will reduce the net income from the rental income you receive on the property.

If you're currently able to use the mortgage income deduction on your current residence, you should continue to be able to deduct the interest expense on your new home.

Even if you didn't rent out the home, it's likely that you could use the interest deduction on both. IRS Publication 936, Home Mortgage Interest Deduction, has all the details.

It's worth your while to consult with a professional tax adviser to discuss what you can and can't deduct as business expenses on the rental property. Consulting the tax professional upfront could save a lot of headaches when you go to file your first tax return after becoming a land baron.

-- Posted: Jan. 24, 2002