Is it better to enter my mortgage interest and property taxes under my farm or under deductions?

[pk]

@nailtech123 , are you asking if the mortgage interest on your agricultural property ( FARM )  on which your house sits should be reported as an expense to your Farm or on your home ?  Or are you asking  if because you use your home ( part of ? ) as a place of business ( firm / LLC/ Sole-proprietor ), that you should deduct mortgage interest as a business expense ? 

I cannot answer the question with any certainty because  it depends on the actual facts and circumstances --- but generally  I would not suggest deducting all of  home mortgage interest  ( if the second case above is true ) as a business expense.   Please provide more details --- and I will circle  back and help

pk

[Critter-3]

It is not a question of "what is better"  but "what is correct" ... so depending on the facts of the case the answer will be different however if you use it part for the farm and part personally the expenses would need to be prorated between the Sch A and the Sch F.  

[nailtech123]

Thank you. Yes I want to what is correct. We own 100 acres and produce hay.  We live on the property

[nailtech123]

We own 100 acres and produce hay and we live on the property 

[pk]

@nailtech123 ,  now that  you have clarified the situation, I understand the issue to be :

(a) The property  ( 100 acres of  Ag land  and a house  that sits on it ) has been acquired  and a mortgage  has been taken on this  i.e. against the whole property.

(b) there is business income from the property and the house is residential--primary residence of the owners

(c) the issue of allocation of the  mortgage  interest and the property tax between Schedule-A ( itemized deduction ) and  Schedule-F ( Farm income ) is while the mortgage interest and prop. taxes are for the whole prop, Schedule-A deductions  for both the interest and prop taxes are  limited  ( by outstanding mortgage  and SALT)  while these are not limited  in case of Schedule-F.  Thus the tension on how to do it.

(d) as @Critter-3  has  correctly pointed out that there needs to be allocation of these items between Schedule-A and Schedule-F.   As a practical matter , I suspect it is more complicated by ( possible) fact that often  in such housing,  the living quarters  are pretty small,  and farm business related material/ machinery are stored within the roof line of the residence -- barn/garage / from yard / back yard.   At least this is true of the farms  that I have seen in MI.  Even if one gets the assessment details from the local tax administration/ city, the improvement value will definitely include all physical structures  whether used for residential  or farm/ business purposes.  

(e) Hence my suggestion for  this allocation would be  (a) get the tax assessors allocation of value between total land  { $L }    and total improvements  { $I} ; (b) measure actual dedicated SQ. Ft of residential portion of improvement "R"  and total improvement Sq. Ft   "TI"; (c) create a ratio of R to TI.  (d ) now use this R/TI ratio to allocate  property tax to the residence and a similar ratio for mortgage insurance. Also don't forget to use the improvement to total valuation to allocate the  "outstanding mortgage "  balance  for purposes of Schedule-A mortgage interest deduction eligibility.

Does this make sense ?

Please remember to record all this for the first time  and from then on follow this same basis  for future.  IRS may come back to understand the allocation procedure.  Obviously from tax collection perspective ( even though not intended in the law )  it would be best  to allocate all mortgage interest and tax to the residence and thus disallow most of it while from the tax payer perspective  lumping all the mortgage interest and the property taxes onto the FARM business ( schedule-F ) would be desirable.

Is there more I can do for you ?

stay safe

pk