Question

How to calculate average loan balance on an owner occupied duplex

Forum|Forum|6 years ago
March 18, 2020
1 reply
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I own and live in a duplex. I live in one half and rent the other half out to a tenant. I believe that I am permitted to claim half of the interest expense as a rental expense on Schedule E, and the other half of the interest as a deduction on my personal residence.

But I am uncertain how to calculate the average loan balance for the purposes of the interest expense deduction limits on my personal property. The loan on the property is ~$855k, but that's for the whole property. If I'm dividing the interest expense between the rental unit and personal residence, should I do the same with the average balance of the loan? I.e. should I treat the average loan balance as ~$427k rather than ~$855k since I'm only claiming 1/2 of the interest as a deduction on my primary residence?

P

pk12_2

Employee

@camdenwn , yes for your tax purposes you treat these two units as two separate properties -- thus rental portion would have depreciation on half of the acquisition cost. mortgage interest on 50% of total, ditto for taxes, ditto for insurance etc. etc. Note that when you dispose off the property, there will be depreciation recapture to consider -- perhaps you should use a tax professional at that time ( when you sell ).