I have one mortgage which was used to buy our home that has an a cottage/ADU in the backyard. We rent that cottage. It is my understanding that expenses including mortgage interest and taxes should be prorated based on the square footage of the cottage / the total living space on our property (house + cottage). It's also my understanding that expenses specific to the rental do not need to be prorated.
In the rental section of TurboTax I entered the amount of interest attributable to the rental (total interest paid on our mortgage multiplied by the aforementioned %). Then, in the deductions & credits section I enter all the information from our 1098. The balance on our mortgage is > 750,000 so the actual deduction gets capped (as can be seen in Federal Review).
Here's what I want to confirm: I am separately deducting interest for the rental AND for our primary residence. This means we are deducting interest on more than $750,000 of the loan. On one hand this feels like double dipping. On the other hand, it sees reasonable in that we paid more for our house in order to have this investment rental side business and income. Can you confirm whether I'm doing this correctly?
Thank you for your insight.
