According to the IRS, whenever a taxpayer takes out a mortgage to buy, construct or substantially improve a second home, the interest is deductible if that taxpayer chooses to itemize his or her deductions.
But, the taxpayers deduction may be limited if the mortgage exceeds the fair market value of the home or if the mortgages on the main home and the second home exceed $1 million ($500,000 if you're Married Filing Separately). Thus, you would be allowed to write-off the mortgage interest on this 2nd home provided the combined mortgage of the 1st and 2nd home does not exceed $1,000,000.
Now, the IRS has also stated that "if you have a second home and rent it out part of the year, you also must use it as a home during the year for it to be a qualified home."
The IRS requires the taxpayer to use this home more than 14 days or more than 10% of the number of days during the year that the home is rented at a fair rental, whichever is longer, for the home to be considered as a qualified home.
If the taxpayer does not satisfy this requirement, than the taxpayer is not considered to have used the home long enough, and the residence would be considered a rental property and not a second home. The consequences of this would be that mortgage interest deduction would be reported as a part of the rental property expenses as reported on Schedule E. These rental property deductions would be limited to the taxpayers AGI limitations and rules governing the passive loss limitations pertaining to rental property.