Can You Write Off Mortgage Payments as a Business Expense?

You cannot write off a mortgage payment as a business expense in full. The IRS splits that payment into pieces and treats each one on its own terms: the interest, property taxes, and insurance can be deductible depending on how the property is used, but the principal never is. You recover the principal through depreciation instead, spread over decades. Whether you own a dedicated commercial building or run a business from a corner of your house changes which pieces you can claim and where they go on your return.

The Four Parts of a Mortgage Payment

A standard payment bundles principal, interest, taxes, and insurance. Each gets its own tax treatment.

Principal pays down the loan balance. Repaying borrowed money is never deductible. The tax benefit for the underlying purchase comes through depreciation.
Interest is generally deductible, either as a business expense on commercial property or as an itemized personal deduction on a residence. Your lender reports the annual total on Form 1098.¹
Property taxes are fully deductible against business income when the property is used entirely for business. On a personal residence they go on Schedule A and are subject to the SALT cap.
Insurance premiums (hazard and liability) are deductible in proportion to business use. Use 20% of your home as a qualifying office and 20% of the premium is a business deduction.

Principal is the piece that catches people out. It feels like a cost of doing business, but the IRS treats it as a balance-sheet transaction, not an expense.

Deducting Costs on a Building Your Business Owns

If your business owns a building used entirely for operations, the ordinary and necessary expenses of running that property are deductible under federal law.² That includes 100% of the mortgage interest, property taxes, utilities, maintenance, and insurance premiums. These go on the return that matches your entity: Schedule C for sole proprietors, Form 1120 for corporations, or Form 1065 for partnerships.

The building itself is depreciable; the land underneath it is not, because land doesn’t wear out. When you set up the asset, you split the purchase price between the two. Commercial buildings are depreciated using the straight-line method over 39 years, so you deduct a small equal slice of the building’s cost each year.³ The calculation goes on Form 4562.

Larger businesses hit a ceiling on interest deductions. Under Section 163(j), companies with average annual gross receipts above roughly $31 million (adjusted for inflation) can only deduct business interest up to 30% of adjusted taxable income.⁴ Most small businesses fall well below the threshold and can deduct all their mortgage interest.

Writing Off Mortgage Costs When You Work From Home

Self-employed people and sole proprietors who work from home can deduct a share of their housing costs, but the qualification rules are strict. The space must be used exclusively and regularly for business, and it must be your principal place of business or a place where you regularly meet clients.⁵ “Exclusive” is the word that knocks most people out. A spare bedroom that doubles as a guest room does not qualify. A space also qualifies if you use it for administrative or management tasks and have no other fixed location where you do that work.

Once you qualify, you pick between two methods.

Actual Expense Method

Calculate the percentage of your home’s total square footage dedicated to the office, then apply that percentage to your actual housing costs. If the office is 15% of the home, you deduct 15% of the mortgage interest, property taxes, insurance, utilities, and maintenance.

The business share of mortgage interest and property taxes gets reported on Form 8829, which feeds Schedule C.⁶ That reduces your self-employment income, which lowers both income tax and self-employment tax. The remaining personal share of mortgage interest and property taxes still goes on Schedule A as an itemized deduction.

You also depreciate the business portion of the home’s structure. The IRS treats that slice as nonresidential real property, depreciated over 39 years using the straight-line method.⁷ Depreciation, insurance, and utilities are limited to the gross income the business earns from that space. If income is low in a given year, some of the expenses carry forward rather than creating a loss.

Simplified Method

The simplified method skips the calculations. You deduct $5 per square foot of office space, up to 300 square feet, for a maximum of $1,500 a year.⁸ No depreciation, no Form 8829, no tracking utility bills.

The trade-off is that your full mortgage interest and property taxes stay on Schedule A as personal itemized deductions. None of those costs reduce your self-employment income. If you have a large dedicated office in a high-cost home, the actual expense method almost always beats it. The simplified method wins when the office is small and the recordkeeping isn’t worth the effort.

How Your Business Structure Changes the Path

The rules above apply cleanly to sole proprietors and single-member LLCs reporting on Schedule C. Other entity types route the deduction differently.

A partner in a partnership can still deduct home office expenses, but they show up as unreimbursed partnership expenses on Schedule E rather than Schedule C.⁵ The same exclusive and regular use tests apply.

S-corporation shareholders take an entirely different path. A shareholder-employee cannot claim a home office deduction on a personal return. Instead, the corporation sets up an accountable plan that reimburses the shareholder-employee for home office costs. The reimbursement is deductible for the corporation and tax-free to the employee, provided the plan meets three IRS requirements: the expense has a legitimate business connection, the employee substantiates it with documentation, and any excess reimbursement is returned to the company. Without a properly maintained accountable plan, the reimbursement becomes taxable wages.

Depreciation Recapture When You Sell

Taking depreciation gives you a tax break now, but the IRS collects some of it back when you sell. This applies to commercial buildings and to the business portion of a home.

When you sell commercial property at a gain, the portion of the gain tied to depreciation you previously took is taxed at up to 25% as unrecaptured Section 1250 gain, rather than at the lower long-term capital gains rate. The sale is reported on Form 4797.⁹

Home offices create a more subtle trap. When you sell a primary residence, Section 121 generally lets you exclude up to $250,000 of gain ($500,000 for joint filers) from income.¹⁰ The exclusion does not cover gain equal to the depreciation you took (or were entitled to take) on the home office after May 6, 1997. That amount is recognized and reported even if the rest of your gain is fully excluded. During years you used the simplified method, no depreciation was claimed, so there is nothing to recapture for that period. This is worth weighing when you pick a method: the actual expense method gives a larger annual deduction but builds a future tax bill; the simplified method gives less now but leaves nothing to recapture for those years.

Caps That Apply to the Personal Side

Two caps affect the personal portion of what a homeowner claims on Schedule A. Neither touches deductions taken as business expenses.

The state and local tax cap limits how much of your combined state income tax and property tax you can itemize. Under the One Big Beautiful Bill Act, the cap was raised from $10,000 to a base of $40,000 for tax years 2025 through 2029, with a small annual inflation adjustment. For 2026, the cap is approximately $40,400 ($20,200 for married filing separately). It is set to revert to $10,000 in 2030 unless Congress acts. Property taxes on dedicated commercial property, and the business share of property taxes on a qualifying home office claimed through Schedule C or Form 8829, are not subject to this limit.

Personal mortgage interest claimed on Schedule A is deductible on up to $750,000 of mortgage debt for loans originated after December 15, 2017. Loans taken out before that date are grandfathered at the prior $1 million limit. This cap does not affect mortgage interest deducted as a business expense on commercial property.

Records to Keep and Forms to File

The IRS can disallow any deduction you can’t substantiate, and home office claims tend to draw more scrutiny than most. Keep at minimum:

Form 1098 from your lender showing annual mortgage interest paid¹
Property tax bills from your local government
Insurance premium statements and proof of payment
Square footage measurements of both the office and the total home, if you use the actual expense method
Full-year utility bills for electricity, gas, water, and internet under the actual expense method

Electronic records are fine as long as they’re legible, organized by tax year, and accessible to the IRS.¹¹

Sole proprietors using the actual expense method file Form 8829, which flows to Schedule C, line 30.⁶ The simplified method skips Form 8829 and goes straight on Schedule C. Depreciation on commercial property goes on Form 4562.³ A sale of business property is reported on Form 4797.⁹

1
Internal Revenue Service. Instructions for Form 1098 – Introductory Material
2
Office of the Law Revision Counsel. 26 USC 162 – Trade or Business Expenses
3
Internal Revenue Service. Publication 946, How To Depreciate Property
4
Internal Revenue Service. Questions and Answers About the Limitation on the Deduction for Business Interest Expense
5
Internal Revenue Service. Topic No. 509, Business Use of Home
6
Internal Revenue Service. 2025 Instructions for Form 8829 – Expenses for Business Use of Your Home
7
Internal Revenue Service. Publication 587, Business Use of Your Home
8
Internal Revenue Service. Simplified Option for Home Office Deduction
9
Internal Revenue Service. 2025 Instructions for Form 4797 – Sales of Business Property
10
Internal Revenue Service. Publication 523, Selling Your Home
11
Internal Revenue Service. How Should I Record My Business Transactions