Mortgage Interest Allocation When Renting Portion of your Primary Residence

[hadjmm]

I have an attached accessory dwelling unit (upper floor) of my primary, single-family home residence which we fully rent out all year.  Historically I have applied a portion of my mortgage interest deduction (38% based on square footage of rental as portion of total square footage) Schedule E deductions for the rental and the rest to my personal itemized deduction.  Recently I'm finding it would actually be more advantageous (maximize my return) to apply all of the mortgage interest under my personal itemized deductions. Am I required to split it out between the rental portion and part of the home I live in or can I opt to apply it to my personal itemized deduction entirely? Thank you!

[Cynthiad66]

To accurately reflect the gain or loss for the Rental property you must report the expenses that are applicable to the rental on Schedule E and the amount applicable to the Primary residence portion to Schedule A.  There are other factors to consider when deducting expenses attributable to income producing properties.

You must split any expenses – mortgage interest, mortgage insurance premiums, and real estate taxes – between the rented portion of your home and the unrented part.

Renting All or Part of Your Home

[hadjmm]

Thank you for your help!