Is Mortgage Interest Deductible? Negative Gearing & the Cross-Border Rental Deduction Map (2026)
Published on: June 14, 2026
Quick answer: The headline tax rate on foreign rental income tells you little until you know what you can subtract first. The US, Germany, France (régime réel) and Australia generally allow full deduction of rental mortgage interest; the UK restricts individual residential landlords to a 20% tax credit under Section 24. Australia, as of mid-2026, even lets a rental loss offset your salary (negative gearing), though this is being restricted for established residential property bought after 12 May 2026. The same "10% yield" can be tax-efficient in one country and punishing in another, purely because of how each treats deductions.
Ask "how is my rental income taxed abroad?" and most guides answer with a single headline rate, the gross tax you pay on the rent. That is only half the story, and usually the less important half. The number that actually determines whether a leveraged rental makes money is what you are allowed to subtract before that rate applies: expenses, mortgage interest, and depreciation. The same property, financed the same way, can be tax-efficient in one country and punishing in another purely because of how each treats those deductions. (For the gross-rate side of the ledger, see our non-resident rental income tax guide.)
This is the deduction map, five major systems, side by side, as of 2026. It is general information, not advice, and the detail in every one of these regimes is more complex than a single article can capture.
The deduction that matters most: mortgage interest
For a leveraged buyer, mortgage interest is typically the largest single cost. Whether you can offset it against rental income, and how, is where the systems diverge most sharply.
United Kingdom, Section 24: the deduction that became a credit
The UK is the cautionary tale. Until 2017, individual landlords deducted mortgage interest in full before calculating taxable profit. Section 24 phased that out, and since April 2020 individual residential landlords can no longer deduct finance costs at all. Instead they receive a basic-rate (20%) tax credit on the interest.
The sting is in the mechanics. Because tax is now calculated on gross rent before interest, a higher-rate taxpayer effectively gets relief at 20% on a cost they are funding out of 40%-taxed income, and the inflated gross figure can even push a basic-rate landlord into the higher band. Two further points for 2026: properties held in a limited company are generally outside Section 24 and can typically deduct interest as a business expense, subject to the normal corporate tax rules (one reason many UK landlords incorporated, see our holding-structures guide), and the Furnished Holiday Let regime, which used to escape Section 24, was abolished from 6 April 2025, pulling former holiday lets into the same restriction.
Australia, negative gearing: losses offset your salary
Australia sits at the opposite pole. Under negative gearing, if your deductible costs (including the full mortgage interest) exceed your rental income, the resulting loss can be offset against your other income, including salary, reducing your overall tax bill. Depreciation adds to this: the building structure is generally written down at 2.5% per year over 40 years (for properties built after September 1987).
The honest framing matters here. Negative gearing reduces tax, but a negatively geared property is, by definition, costing you cash to hold every year; the strategy leans on capital growth to make up the difference. It rewards high earners in rising markets and punishes the opposite. It still applies as of mid-2026, but change is coming: the 2026 Federal Budget announced that for established residential properties purchased after 7:30pm AEST on 12 May 2026, negative gearing against salary or other income will be abolished from 1 July 2027, with losses only offsettable against rental income or future rental capital gains. Existing owners are grandfathered and eligible new builds remain exempt.
France, régime réel: deduct everything, including depreciation
France's furnished-rental real-expenses regime (régime réel) is among the most generous on paper: you deduct actual expenses, loan interest, property tax, insurance, management, works, and depreciate the building and furniture, which can, depending on the figures, reduce taxable rental income substantially, sometimes to near zero, for a period. (See our dedicated guide on furnished regimes for the LMNP detail, including the important 2025 change that claws depreciation back at sale.)
Germany, Werbungskosten + AfA: interest now, depreciation over time
Germany splits costs cleanly. Werbungskosten (income-related expenses), mortgage interest, repairs, management, are fully deductible in the year paid. Acquisition costs and the building itself are recovered through AfA depreciation: straight-line at 2% a year for older buildings and 3% for those completed from 2023, with an additional special depreciation available for qualifying new energy-efficient rentals. Crucially, German depreciation can be set against other taxable income, which is why it is one of the country's most valued landlord benefits.
United States, Schedule E: deduct, depreciate, but mind the passive-loss rules
US owners report rental income and expenses on Schedule E. Mortgage interest, operating costs and depreciation (residential buildings are written off straight-line over 27.5 years, land excluded) are all deductible. The catch is the passive activity loss rules: rental losses generally cannot be set against ordinary wage income, with a limited exception for active participants (up to a capped allowance that phases out at higher incomes) and a separate path for those who qualify as real-estate professionals. So the US allows generous deductions, but is stricter than Australia about using a loss to shelter your salary.
The pattern, at a glance
| Country | Mortgage interest | Depreciation | Loss vs other income |
|---|---|---|---|
| UK (individual) | 20% tax credit only (Section 24) | No (residential) | Restricted |
| UK (company) | Full deduction | Limited | Within company |
| Australia | Full deduction | Yes (2.5%/yr) | Yes, negative gearing |
| France (régime réel) | Full deduction | Yes (clawed back at sale from 2025) | Within category |
| Germany | Full deduction | Yes (2–3%/yr) | Often yes |
| USA | Full deduction | Yes (27.5 yrs) | Restricted (passive-loss rules) |
The takeaway: a "10% rental yield" means very different things depending on where the property sits. In a full-deduction, loss-offsetting system the after-tax reality can be far better than the headline; under Section 24 it can be far worse.
How to use this before you buy
- Find out the deduction rules, not just the rate. The headline tax rate tells you little until you know what you can subtract first.
- Model the after-tax cash flow, leveraged. Interest treatment can flip a deal from positive to negative. (See our cash-vs-mortgage explainer.)
- Watch the exit, not just the income. Depreciation that helps each year can increase the taxable gain at sale (as France's 2025 change shows, and as US "depreciation recapture" has long done).
- Consider the holding structure. Personal vs company ownership changes the answer materially in places like the UK, but brings its own costs.
Frequently asked questions
Can I deduct mortgage interest on a rental property?
It depends entirely on the country. The US, Germany, France (régime réel) and Australia generally allow full deduction of rental mortgage interest; the UK restricts individual residential landlords to a 20% tax credit under Section 24. Always check the specific regime.
What is negative gearing?
An Australian feature whereby a rental loss, including full mortgage interest, can be offset against your other income, such as salary, reducing overall tax. It relies on capital growth to offset the ongoing cash loss. It remains in place in 2026, but the May 2026 Federal Budget announced that for established residential property bought after 7:30pm AEST on 12 May 2026, losses can no longer be offset against salary from 1 July 2027 (offset only against rental income or capital gains); existing/grandfathered holdings and new builds are unaffected.
What is the UK Section 24 rule?
Since April 2020, individual residential landlords cannot deduct mortgage interest from rental income; they receive only a 20%-of-interest tax credit. It does not apply to property held in a limited company. The Furnished Holiday Let exemption ended in April 2025.
Does depreciation reduce my tax forever?
No, it usually defers it. Many systems recapture depreciation at sale (US depreciation recapture; France's 2025 LMNP change), increasing the taxable gain. Depreciation is a timing benefit, not a permanent one.
Compare the after-tax reality across markets
The deduction regime can matter more than the headline yield. Compare rental markets, prices and the cross-border rules across 50+ countries on JanusHermes, then confirm the tax detail with a local adviser before you commit.
JanusHermes is a property-search and listings platform. This article is general educational information as of mid-2026 and is not tax, legal or financial advice. Rental-income tax rules, deduction limits and depreciation regimes are highly technical, differ by ownership structure and residency, and change frequently. Confirm your specific position with a tax adviser licensed in the relevant country before relying on any of this.
A note on the numbers: where no source is named, the market figures in this article (prices, yields, costs) are indicative estimates compiled from publicly available market data and industry reporting at the time of writing. Markets move and rules change, so treat them as a starting point and verify current figures with official sources before acting on them.
