Question

Owner occupied Rental Property - Standard deduction - Mortgage Interest in Schedule E

Forum|Forum|6 years ago
October 25, 2019
2 replies
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Hi,

I am buying a SFH that has a guest suite. I am financing the purchase through a mortgage.

I am planning to convert the guest suite into an ADU once I buy the house.

Will I be able to deduct mortgage interest as part of rental expense and use standard deduction?
For example, If the ADU is 40% of the entire house, can I attribute 40% of the mortgage interest as rental expense and claim it in Schedule E and use standard deduction.

TurboTax Premier Online

A

Anonymous

Owner-occupied rental property gives you access to two different pools of potential tax deductions. The part of the property that you occupy is treated as your house, and you can write off anything that you'd write off on as an itemized deduction on a single-family residence. The rental part is treated as a separate investment property for which you file Schedule E. All that you need to do is to allocate expenses between your unit and the rental unit or units on a pro-rata share.

Your unit's pro-rata share of the property's mortgage interest and property taxes can be deducted on your Schedule A form. However, if you do not itemize your deductions, you will not be able to claim them. The remaining interest and property taxes get reported on lines 12 and 16 of your Schedule E. You can claim the expenses on your Schedule E regardless of whether or not you itemize your personal deductions.

first you must make an allocation between land and building based on relative Fair Market Value

the rental portion is depreciated over 27.5 years and is claimed on your Schedule E. the usual way to allocate between personal and rental is square footage. so if the guest suite (the rental portion) is 40% of the square footage of the house then 40% would be the rental portion.

you must have an enormous sized guest suite if its 40% of the square footage of the house.

by the way talk to your insurance agent about insurance on the rental portion. the standard home owners policy might not protect you should the tenants be responsible for burning down the property.

N

Nenette11

You can allocate the percentages of interest expense and RE taxes between the Schedule A and Schedule E. TT ask you to input the entire amounts on the Schedule E rental form and will do the calculations for you. TT's calculation is erroneously allocating 100% to the Schedule E and (in my case) 50% to the Schedule A. This in effect overstates the deduction by 50%. I am now attempting to enter the amounts on my own.