I have an interesting situation that I haven't been able to find the answer for. I purchased a home at the end of 2020 and started renting out a room in my home starting April 2021. I received a single 1098 that I now need to split between my Schedule A and Schedule E. I did a bunch of reading from other posts, and am following this publication to work through it:https://www.irs.gov/pub/irs-pdf/p527.pdfWhat I've done:Calculated what % of the total square footage the rental portion is, and then multiplied that by .75 (9/12 months up for rent). Let's call this X.I used X to split home-wide expenses, including mortgage interest and property taxes, on my Schedule E.I then took the balance of the mortgage interest and property taxes on my 1098 and listed them as itemized deductions on my Schedule A.I'm 99% sure I did the steps above correctly, but here's the kicker.The total mortgage balance listed on my 1098 is over $750k, so I wouldn't be able to deduct it all if I was only filing a Schedule A.However, if I multiply the mortgage balance by X, it drops below the $750k threshold.Should I be dividing the mortgage balance along with the deductions between Schedule A and Schedule E? Or do they have to fall under $750k total? I know this is a bit weird because I don't think Schedule E rentals are restricted by that same $750k limit. Would really appreciate any clarity on this matter! Thanks!

TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Community

Solved

Renting Out Room in Home with Mortgage Over $750,000

Forum|Forum|4 years ago
March 16, 2022
1 reply
0 views

I have an interesting situation that I haven't been able to find the answer for. I purchased a home at the end of 2020 and started renting out a room in my home starting April 2021. I received a single 1098 that I now need to split between my Schedule A and Schedule E.

I did a bunch of reading from other posts, and am following this publication to work through it:

https://www.irs.gov/pub/irs-pdf/p527.pdf

What I've done:

Calculated what % of the total square footage the rental portion is, and then multiplied that by .75 (9/12 months up for rent). Let's call this X.
I used X to split home-wide expenses, including mortgage interest and property taxes, on my Schedule E.
I then took the balance of the mortgage interest and property taxes on my 1098 and listed them as itemized deductions on my Schedule A.

I'm 99% sure I did the steps above correctly, but here's the kicker.

The total mortgage balance listed on my 1098 is over $750k, so I wouldn't be able to deduct it all if I was only filing a Schedule A.
However, if I multiply the mortgage balance by X, it drops below the $750k threshold.

Should I be dividing the mortgage balance along with the deductions between Schedule A and Schedule E? Or do they have to fall under $750k total? I know this is a bit weird because I don't think Schedule E rentals are restricted by that same $750k limit.

Would really appreciate any clarity on this matter! Thanks!

TurboTax Self Employed Online

Best answer by Vanessa A

You are correct there in the steps you listed and regarding the Schedule E not having the same 750K restrictions.

And yes, you would multiple the rental area portion by the total balance as if it was a detached property with a separate mortgage that you would be claiming the mortgage interest on.

Vanessa AAnswer

You are correct there in the steps you listed and regarding the Schedule E not having the same 750K restrictions.

And yes, you would multiple the rental area portion by the total balance as if it was a detached property with a separate mortgage that you would be claiming the mortgage interest on.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

lyu

Is my understanding below correct? For simplicity let's say principal of the loan is $1M, interest on the mortgage is $16k, and 25% of the house was rented out throughout the entire 2022.

Schedule E: claim $4k of mortgage interest (16k * 25%)

Schedule A: claim $12k of mortgage interest (16k * 75%)

If TurboTax automatically reads in form 1098, we need to manually overwrite mortgage interest at this step from $16k to $12k
Actual mortgage expense deductible in Sche A will be around $9k (calculated as 12k * $750K limit / $1M): this part is automatically handled by TurboTax (and it's just a shame to not be able to claim the full $12k even though we'd be right at the $750K limit if we removed the rental portion of the loan principle)

Is my understanding correct?

PatriciaV

Employee

No, if you enter the full amount from Form 1098 under Rental Expenses, TurboTax automatically allocates the correct percentage of the interest to rental expenses and the balance is transferred to Your Home under Deductions and Credits.

The rental portion is fully deductible on Schedule E.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"