Mortgage and real estate deductions and a rental basement apartment expense.

[Mike029]

My home has a basement rental apartment.  It is 27% of my total floor space.  I expense the cost of utilities by multiply the charges by 27% and deducting that from my rental income.  Turbo tax has a process to do that.

Can I do the same for home mortgage interest, real estate taxes and home owner's insurance.  I assume to do this I would have to reduce the interest and real estate taxes reported on my 1098 before entering it into TurboTax.  

Would like to know if this is okay.  Especially taking into account the SALT limitations. 

Thanks

[LeonardS]

Yes, you may use the 27% of mortgage interest, real estate taxes, and home owner's insurance as rental expenses.  Any of the remaining amounts (73%) can be allocated as itemized expenses if you are able to itemize your deductions.  The SALT limitations do not apply to rental deductions.

[Mike029]

Thanks for the info.  It's very helpful.

I thought, might still, get to itemize my deductions.  The problem then became squaring up the  1098 form reflecting paid mortgage interest. In the past I just allocated the interest as a personal deduction at 73% and 27% as rental expense.

TurboTax did not like that.  Said it would cause a problem with the 1098 not balancing with the other forms starting with the schedule E worksheet.   This is now just an academic exercise but if I could itemize how would I account for the difference in reporting the 1098 versus the deductions taken.

[ColeenD3]

Yes, you can itemize the mortgage interest and property taxes and allocate the proper percentage to each portion of the property. If the program gives you a warning, ignore it. If it actively prevents you from filing, that is another issue.

The IRS probably will not be worried if less is claimed than reported on the 1098. You may need to explain to the IRS why you did it in this way. Ideally, they would be able to put two and two together, but you can't always count on it.

You can also prorate repairs to your personal portion to the extent that it affects the rental portion. For example, plumbing, landscaping, trash hauling, etc.