I am going to be renting out part of my house. How do I divide up my mortgage interest deductions?


I know that I am going to be operating at a loss on the schedule E (my mortgage interest alone will surpass my rental income). So can I just take the remainder of my mortgage interest deduction not used on the Schedule E as an itemized deduction?

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One thought on “I am going to be renting out part of my house. How do I divide up my mortgage interest deductions?

  1. no.

    IRS requires that you divide up the costs on some logical basis and only those then deemed due to the rental operation go to schedule E with the rest going to Schedule A.

    In past cases, I believe they’ve accepted both division by number of rooms [excluding baths and storage areas] and division by number of square feet. Yes, joint use areas can be shared by both you and your tenant.

    It is VERY IMPORTANT that you document the exact allocation method you choose and that you use the same method every year as time goes on.

    Btw, depreciation based on your allocation method and the portion of the cost of the property that relates to the building [but not the land] is also required for Schedule E — so your Schedule E will likely show a loss.

    ***
    Be advised that doing this moves the part of the house that you determine is the rental out of personal property and into rental property. This has long term consequences for capital gains on sale [as if, in the present economy, where will be any] and for depreciation recapture at sale, etc.

    It may also have consequences for the local property tax assessor.

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