My rental situation is perhaps unique in that all the expenses (if I include half of real estate taxes and half of mortgage interest) exceed the rental income.
That's not unique at all. In fact, it's expected. It is not common for long term residential rental property to actually show a profit on line 26 of the SCH E. It's more common to show a loss.
When you add up the rental deductions of mortgage interest, property taxes, insurance and add that to the depreciation you're required to take, those four items alone are usually enough to exceed the total rental income for the year. Add to that the additional allowed rental expenses such as repairs and maintenance, and you're practically guaranteed your expenses will exceed the rental income every year.
With current tax law, when your rental expenses exceed your rental income and your AGI is below the threshold, up to $25K of those excess expenses can be deducted from other ordinary income, provided you actually have that "other" income that would be taxable otherwise.
After that, any excess loss is just carried forward to the next year.
Also, since the mortgage interest is a SCH E expense, that's where you have to claim it anyway. Your only choices are to either claim it as a SCH E deduction, or don't claim it at all. Trying to shift things around to make it more beneficial to you is most likely, not exactly legal in this case.
