I have a rental ADU in the back of my property. Do I enter the mortgage interest and property taxes in the rental property income section or in the deductions/credits?

 
ColeenD3
Expert Alumni

Investors & landlords

Are you renting the property and receiving income? If so, you need to prorate expenses between your home and the rental property.

 

If it is empty and not available for rent, there is no deduction for any expense.

 

If the second scenario is the case and both buildings are under the same mortgage, enter it only under your primary residence in Deductions and Credits.

Investors & landlords

It is a backyard rental ADU that I received rental income on that's part of my main house that I live in.  There's a category under Wages and Income for rentals and royalties under subcateogy EXPENSES / ASSETS (DEPRECIATION) where you can input your overall real estate taxes and mortgage interest.  You can also input these values in the Deductions and Credits category.  Inputting the values in both increases my refund substantially.  My question is if I can/should do so or just input it in the Deductions and Credits category like I would normally.  If I prorate it, how much of my real estate taxes and mortgage interest can you put under Wages and Income? 

DianeW777
Expert Alumni

Investors & landlords

The amount of mortgage interest and real estate taxes that is placed in the rental activity should be prorated.  Use the tax statements from the property tax office to figure out the portion that should be allocated to the accessory dwelling unit (ADU). If that is unavailable then take the square feet of the ADU divided by the combined square feet of your residence and the ADU to arrive at the rental percentage.

 

Do not enter the full amount in both places (Deductions and Credits and rental activity). Once you have figured out the amount for each, then enter the personal portion in Deductions and Credits, and the rental portion under rental expenses.

 

This percentage should also be used to determine the cost of the ADU for your depreciable asset if you own or are buying the property.

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