Is Commercial Property Mortgage Interest Tax Deductible?

Yes, the interest paid on a commercial property mortgage is generally tax-deductible. This means that the borrower may be able to reduce their taxable income by deducting the interest paid on their commercial mortgage from their taxable income.

However, there are certain requirements and limitations on the tax deductibility of commercial mortgage interest. First, the property must be used for business purposes in order for the interest to be tax-deductible. If the property is used for personal purposes, such as a vacation home, the interest may not be deductible.

Second, the borrower must be legally liable for repaying the mortgage in order to deduct the interest. This means that the borrower must be named on the mortgage agreement and must be legally responsible for repaying the loan. Suppose the borrower is not legally liable, such as in the case of a guarantor. In that case, they may not be able to deduct the interest.

Third, there are limitations on the amount of interest that can be deducted. Under current tax law, the deduction for interest paid on a commercial mortgage is generally limited to the amount of interest paid on up to $750,000 of debt used to acquire or improve the property. Any interest paid on debt over this limit may not be tax-deductible.

It's important to note that these limitations apply to the total amount of debt, not just the amount of interest paid. For example, if a borrower has a commercial mortgage of $1 million, with an interest of $50,000 per year, only the interest paid on the first $750,000 of debt would be tax-deductible.

In addition to the above limitations, there may be other factors that can affect the tax deductibility of commercial mortgage interest, such as the borrower's tax bracket, the type of business entity, and the specific use of the property. It's important for borrowers to consult with a qualified tax professional to determine their specific tax situation and eligibility for deducting commercial mortgage interest.

In summary, the interest paid on a commercial property mortgage is generally tax-deductible, but there are limitations on the amount of interest that can be deducted. The property must be utilized for business purposes, the borrower must be legally liable for the mortgage, and the total amount of debt must be within certain limits. Borrowers should definitely consult with a tax professional to determine their eligibility for deducting commercial mortgage interest.