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mortgage interest on a dwelling

We have recently "rented" a portion of our home to our special needs son. The sched E worksheet looks correct based on percentage  - however when I review the return the mortgage interest is double (ie looks like we are paying $17k, but we are not. How can I correct this? I'm real confused. 

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Expert Alumni

mortgage interest on a dwelling

First, you should consider whether you should be reporting income and expenses on Schedule E or somewhere else on your return.  You must be renting the portion of your home at a fair rental value with the intent to make a profit. 


From IRS Publication 527, 'If you don't rent your property to make a profit, you can't deduct rental expenses in excess of the amount of your rental income.  You can't deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.'


If you do have a 'not for profit' rental situation, then you would report your rental income as Miscellaneous Income in the Less Common Income section of the Wages and Income section of your return.  Then, since you are renting a portion of your home, you will deduct your mortgage interest and property tax on Schedule A in its entirety as you normally would.  You would also delete Schedule E from your return if this is the case.



If you are renting the portion of your home at a fair rental value with the intent to make a profit, then you would enter the mortgage interest only in the Schedule E section of your return.  After the rental portion has been deducted on Schedule E, the remaining mortgage interest should automatically go to Schedule A. 


Go back through the mortgage interest entry in the Deductions and Credits section of your return and you should see a message on the screen showing that an amount has already been accounted for from Schedule E.  Then, you can delete the extra entry that was made in this section to be included on Schedule A.   





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