How do I deduct the interest on a loan taken out to buy an investment property?

If you itemize, you may be able to deduct the interest paid on money you borrowed to purchase a taxable investment.

 If you receive rental income from the rental of a dwelling unit, there are certain rental expenses you may deduct on your tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.

Interest incurred for an investment in a "passive activity" generally doesn't qualify for the investment interest deduction. A passive activity is a business or trade in which you hold an ownership interest but in which you don't actually participate.

Types of interest deductible as itemized deductions on Schedule A (Form 1040, Itemized Deductions) include:

• Investment interest (limited to your net investment income; see Publication 550, Investment Income and Expenses) and
• Qualified mortgage interest, including points

Click here for What Are Deductible Investment Interest Expenses?

Click here for Topic no. 505, Interest expense

Click here for  Publication 550 Investment Income and Expenses