I refinanced my primary home and received cash early 2017. I invested that cash entirely into buying my rental property.
I'm trying to correctly allocate the mortgage interest on Schedule E for my rental property investment. Let's say I borrowed $50,000 and the original balance on my primary home was $200,000. So in total I owe $250,000 on my primary home. Now I have 1098 from the lender stating $5000 in interest payment for 2017.
Here are my 4 questions
1. What do I state on the Mortagage Interest question for my personal mortgage interest (which is $5000 on form 1098)
2. How much do I put the mortgage interest for the portion of my Rental Property?
3. Where exactly on Schedule E should I include this value?
4. Can I distribute a portion of my closing costs incurred in refinancing my primary home as a business expense on my rental property? If so how much and where should I include that on Schedule E
You can enter the mortgage portion on the Schedule E as though you received a separate 1098 for just that portion, then be sure to reduce the personal interest amount on your Schedule A entry under Deductions and Credits. You would have to do some arithmetic to figure out what portion of the interest was paid on the mortgage for the money invested in the rental. For example, if the total was $250,000 and $50,000 was invested in the rental, divide $50,000 by $250,000 and multiply that percentage times the interest. Since you refinanced in early 2017, hopefully all the interest you paid in 2017 was for the refinanced total. You could use the same percentage to apply to closing costs to allocate a portion to the rental.
You'll be asked during the rental interview if you have any mortgage information to enter. Just go through that section and answer the questions. In that interview , you can also separate out points paid and enter the portion related to the rental property, again using the same ratio you already calculated. The balance of closing cots can be added to the cost basis of your rental.
Take your time to read the questions and make correct entries and you will find all this easier than you think.