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If it would have been the beneficiary's principal residence (but for being owned by the trust) then it is deductible by the trust.
This interest is deducted on Form 1041, Line 10.
If the beneficiary is deducting the interest (which is allowable), then that is reflected on Schedule K-1.
If the trust is making a mortgage payment for a beneficiary, and the trust is not obligated to make that payment, then it is definitely a distribution to the beneficiary.
Report it as such on the 1041, and on the K-1.