Duplex: Overpay on mortgage

6 Replies

Hey everyone, 

I just bought my first duplex and was wondering if I decide to overpay on my monthly mortgage payment, to save on interest paid over time, am I able to expense any of the over payment made against the income from my tenants on my taxes?  

@Michael Doll The other thing that you want to consider is that it should also lower (by tiny, tiny amounts) you are paying in mortgage interest.  Over time your tax deduction (mortgage interest) will lower while your income will grow from rent increases.  This might not play out over 12 months but it will over 12 years.  Accordingly, the amount of taxable income will grow over time.  Assuming your able to sustain overpayments your choices are likely:  pay less mortgage interest to the bank or pay more in tax to the government.  Decisions...decisions...decisions...

@Michael Doll ,

Why worry about future tax implications for paying down your debt.  You will have a lower loan interest deduction each year anyway.  If you pay off the loan balance faster, your interest deduction disappears sooner than it would have without the accelerated payoff.  If your goal is free and clear property, making an extra principal payment every month will cut your loan term in half.

I suggest you use excess cash flow to build up your reserve/replacement fund first.  Then you can use excess cash flow to paydown your loan balance.  If you don't have excess cash flow, I would advise against taking money out of your pocket to reduce the loan balance.  You want your tenants to pay for your property without any extra help from you.

Originally posted by @Christopher Phillips :

@Michael Doll

No. You can't deduct principle paid on a mortgage. Only interest and taxes and PMI (and home insurance if included in escrow).

Just to clarify Christopher's response for your specific scenario. If you are occupying one side of the duplex as your residence, then you cannot deduct hazard insurance for your personal residence. You can deduct both the cost of rental dwelling insurance and the portion of PMI allocated to the rental unit on the Schedule E for your rental unit. BTW: You cannot take a deduction on Schedule E for your escrow payment. You may deduct whatever amount was actually paid from escrow for your property taxes and rental dwelling insurance.

There are some qualifiers before you can deduct PMI premiums for your primary residence:

  • You obtained your loan in 2007 or later.
  • Your mortgage is for your primary residence (or second home).
  • Your adjusted gross income is no more than $109,000. The deduction phases out once your AGI exceeds $100,000 ($50,000 for married filing separately) and disappears entirely at more than $109,000 ($54,500 for married filing separately).

If you meet the qualifications, itemize deductions on Schedule A to take the PMI deduction.