Question

I have an itemized deduction for my 1040. My mortgage is more than 750k. What is excess mortgage interest in my scenario in the home office deduction section?

Forum|Forum|5 years ago
May 15, 2021
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in the home office deduction - there is a section - "If you have excess mortgage interest - enter here"

Employee

....in the home office deduction section?
Assuming this is for a SCH C home office, the $750K limit does not apply. You have no excess mortgage interest to report in that section. If you elected to have the program do the math for you, simply enter the total mortgage interest paid as reported on the 1098 and the program will do the math for you.

The program (not you) will then allocated the "personal use" portion to the SCH A and apply any limits there on the SCH A.

S

SelfGTuserAuthor

Carl,

Thank you for the reply. Can you please elaborate - I am not following. Maybe I am not understanding your answer. I have a schedule C with my return. As an example but not the actual amount.

Personal Deduction and Credit - Mortgage interest, Refinancing and Insurance (17k). Not all of the interest is deducted since only 750k is allowed - that is my understanding.

I have a difference between form 1098 (24k) and what is allowed as mortgage deduction (17k)? 7k of difference.

Do I report the (7k) difference of my mortgage interest above 750k in the home office section as excess mortgage interest or leave it zero? Let me know if my question is clear or confusing. I can provide more detail. Thank you in advance for your answer.

Carl11_2

Employee

I'm not understanding your confusion. Perhaps there's more detail to your situation than I"m aware of. It's also perfectly feasible that "the math" is messing with your head; as the way the IRS has one "do the math" messes with my head quite frequently. 🙂

Lets say you took out a $3M mortgage years ago. Then lets say for 2020 you have $2M outstanding mortgage balance in box 2 of your 1098, and lets say box 1 shows $50,000 of interest paid in 2020.

Then say 5% of your home qualifies as a home office. So 5% of your outstanding balance is $100,000 which gets allocated to the home office. Then 5% of the interest paid in 2020 is $2,500. That $2,500 of interest is fully deductible as a home office expense. Period. That takes care of the SCH C stuff for this. Now erase SCH C from your mind completely.

What's left for SCH A is 1,900,000 outstanding mortgage balance and $$47,500 in interest. On the SCH A you can only actually claim and deduct the interest paid in 2020 on the first $700,000 of the outstanding balance left over after having allocated $100,000 of the amount shown in box 2, to the home office.

$700,000 is 36% of $1,900,000. So only 36% of the remaining interest (47,500) can be claimed/deducted on SCH A. That comes to $17,100 of interest that you can claim on SCH A.