You are not required to report mortgage interest against Schedule E but if you do, the allocation to Schedule A must take place. Here is an example using your 2/3 – 1/3 standard.
1098 mortgage interest of $6,000 means 2/3 to Schedule A $4,000 and 1/3 to Schedule E $2,000.
You may assign:
- The total cost to Schedule A, or
- Allocate between Schedule A/Schedule E,
As you prefer or as the numbers work to your advantage.
The above presumes that you are reporting rental income and expense at full market value and not at a reduced rate for a relative.
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