Thank you! Answer makes sense - have 2 followup questions
1. In the context of your answer, how would I report the interest on the federal tax return? In the above example, I would have to allocate all the interest in sch E and none to the home acquisition portion. I receive a 1098. Say that it shows interest of $25k. If I have a1098 form in turbotax reporting $25k in interest, it autopopulates $25k in sch A. Do I override the $25k in the 1098? Then there is an inconsistency in the reported 1098 and what I report. I know how to enter interest in Sch E, so that is straightforward.
2. It turns out that CA tax law is different than federal in that CA tax law allows you to deduct up to $100k of home equity debt as acquisition debt. Q 2a) When it says you can deduct up to $100k of home equity debt, do you have to? If it is optional, then it is easier to keep one set of books instead of 2 and keep CA state consistent with CA. Q 2b) There is an advantage of deducting $100k as home equity debt because that increases the amount that can be itemized in CA. In the above example, the interest of $25k would be divided between $5k as CA home acquisition debt/equity debt and $20k rental prop debt. Would like to know if it is optional or required to take the deduction of $100k.
Thanks!
