Interest deduction on primary residence with rented room

[mefjr]

Rented room in primary residence.  Input mortgage interest in rental property income section.  Input mortgage interest in deductions section.  When checking Schedule A, it seems to have placed percentage of  interest from rental section in line 8A, but full amount of mortgage interest in 8B, leading to interest income adding up to more than the total interest reported on 1098.  Should I change the input in deductions section to reflect the total interest minus the rental portion of the interest?

[MinhT1]

Yes, you should change the mortgage interest and property taxes you claim in Deductions and credits.

When you rent out part of your home, common expenses have to be apportioned between personal use and business use (rental) of your home.

You need to calculate the percentage of business (rental) use. One common method is to divide the square footage of the rented portion by the total square footage of the house.

In the rental section, you will deduct as rental expenses the rental portion (total costs multiplied by the percentage of business use) of each common cost (such as mortgage interest, property taxes, utilities…). You also claim other costs related to the rental such as repairs and maintenance, etc..

In the personal section, you will claim in Itemized deductions the personal use portion of mortgage interest and property taxes.

Please read this IRS publication, paragraph on Renting Part of Property on page 16.

[mefjr]

Turbotax calculated percentage to be used in rental deduction.  Seems like it should have done same for personal use section.  Thanks for answer.

[ColeenD3]

It does not. Schedule E and Schedule A information is not linked. This is true for both mortgage interest and property taxes.

[OhhTaxes]

I think I have the same question as I rent out a room in my condo, but I didn't understand the answer.

On TTDeluxe, are you saying I need to deduct the percentage of the condo expenses (mortgage interest, insurance, property taxes) in the "deductions and credits" section that lowered my "rental income"? I.e. would the % of my insurance that was deducted from my overall rental income become double-counted if I listed the full amount in my "Your Home" --> 'Mortgage Interest, Refinancing, and Insurance' section?

[AmyC]

@OhhTaxes You are filing a sch E for rental income and expenses. See About Schedule E (Form 1040 or 1040-SR), Supplemental Income and Loss.

For example: Say you rent out 20% of your home. Then 20% of your insurance, mortgage, utilities, etc would go against the income produced.

Insurance is not a tax deduction for a homeowner. Only landlords deduct insurance. So, as in the example above, only 20% of the insurance would be deducted, on sch E. The rest is not deductible.

Mortgage interest is deductible. Following the example, 20% on sch E and 80% on sch A, itemized deductions.

[OhhTaxes]

Thank you, that makes sense outside of the TT program. I see that the TT program does not make use of the % of dwelling rented out in its calculations.

[AmyC]

@OhhTaxes Yes the program can be used to calculate that for you.

1. Edit your rental,
2. edit general information. 
3. When you select the type of rental, select Other and the description could be room rented.
4. Then select under Situations that you rent out part of your home.
5. Was it rented all year? The personal use refers only to the rented room, not the rest of the place. Enter days the room was rented.
6. continue through more screens until
7. Let us Calculate Deductions - choose to do the math or let the program. If you choose the program, it asks for the percentage.

[renelena]

I rent out part of my home and when I input the rental expenses information I told TurboTax to do the apportionment calculation based on the rental unit being 20% of my home. For the mortgage interest, TT asked me only for the full amount of the mortgage interest reported to me on Form 1098. I had 2 Form 1098 because I refinanced in 2021.  I entered the combined amount in my rental expenses and TT told me that it was doing the apportionment for my personal deduction. However, when I went to do the Deductions and Credits section of my return, it asked me to enter information from my 1098s. This included information not just just about the amount of mortgage interest reported but about the loan origination date, the principal amount, etc. None of this information was requested at the time I entered my mortgage interest information in the Rental income section, so I assume this was all important information being collected. HOWEVER, once I completed my return I saw that TT appeared to have added the amount of mortgage interest TWICE - the apportioned section calculated under Rental expenses as well as the amount it asked me to enter under Deductions. This is clearly an error. So I deleted all the mortgage interest information  I entered under Deductions. But how is that information (loan origination date, principal, etc.) supposed to now be captured??? BTW, I looked back at my 2020 return and see that TT erroneously calculated my mortgage interest deduction based on exactly the issue I just experienced with the 2021 program.

[DS-CA]

Two years later and TT has the same issue - counts mortgage interest in both places - on 1098 and Schedule E and adds them together on Schedule A.   Every year I have to manually adjust the forms because I think the way the questions are asked and how the forms get filled out is incorrectly calculated.

The other part that is really confusing is TT asks how many days I rented the single bedroom in my primary residence.  It turns out 18% of the year I didn't rent the room and 82% of the year I rented the room.  And the bedroom is 25% of my bedrooms total.  So, do I get to deduct 82% of the mortgage interest or 25%?   Well I think the answer should actually be (.82 * .25 = .21) of the total interest paid for the entire year but there is no form that asks both questions.   

[AmyC]

There are two possible scenarios that yield different answers.

• You state 25% of your home is rented out 82% of the time. The question becomes what do you do with the space the other 18% of the time. If you are using it for friends and family, then your use is 25% x 82%.
• If the room sits there with nothing to do but wait for the next person and is being held out for rent at any minute, it is actually in use as a rental 100% of the time, regardless of it only being rented 82% of the time. Then your deductions are the full 25%.

When you go through Sch E, you have the options of entering the data or letting the program do the math. You can choose your percentage and let the program do the work or you can make your own entries.

 If the program does the math, you enter the full amount of interest and it separates the Sch E and Sch A amounts since you have marked that you rent out part of your home.