I am renting out part of principal residence. I enter rental income data in Turbotax 2023 using Easy Steps. It collects rental income, expenses, property tax, and mortgage interest data as part of Rental income section. It is populating Schedule E correctly. It calculates property tax and mortgage interest portion for personal use itself for the purposes of Schedule A. It appears it is calculating those numbers wrong giving me more deductions than due. Here are the numbers:
Mortgage Interest 1098 reported: $60,000
Home Loan on Principal Residence: $1,500,000 (purchase date: Jan 1, 2020)
Rental portion of principal residence : 1/3
This data is collected by TurboTax in EasySteps as part of Rental Income. It then calculates the following correctly for Schedule E:
Mortgage Interest: 1/3* $60,000 = $20,000
However, in schedule A, it is listing $40,000 ($60,000 - $20,000) as the mortgage interest deduction. I believe the correct amount should be calculated as follows:
Mortgage Loan portion allocatable to personal portion: 2/3 * $1,500,000 = $1,000,000
Mortgage Loan limitation for loans acquired after 2017: $750,000
Mortgage Interest that can be claimed on Schedule A = 3/4 * $40,000 = $30,000
Two questions: is my understanding correct? Is turbotax wrong? Who is responsible if I file as is. If I override turbotax calculations, I cannot file electronically.
I had checked with the lender. They still consider it owner occupied as I am living there and occupy majority of my principal residence. this is not relevant for income tax purposes.
workaround
on schedule E enter the $20K as mortgage interest - don't bother entering or linking the 1098 info
on the schedule for mortgage interest
other than below answer the questions
select primary home
Form 1098
for mortgage interest enter $40K
check the box that the amount entered differs from the 1098
enter mortgage origination date
do not enter outstanding principal balance
for explanation of difference enter something like $20K allocated to rental portion of property.
****
on home interest worksheet you'll need to enter $1,000,000 as the outstanding principal balance
based on this you should see $30K on schedule A for deductible mortgage interest
*****************
there's no good way to handle your situation. I could find no means to have Turbotax prorate the principal balance as well as the interest.
Can you do the computations yourself and enter them into the program?
First I want to confirm if my understanding is correct. Second, if I override TurboTax, I cannot do efiling, and lose TurboTax protection of being error free.
Thank you, appreciate your response. I tried to enter the computations manually, as if rental property and personal property are separate to avoid turbo tax bug. I prorated the mortgage interest as 1/3 and 2/3 each. Problem is: TurboTax asks the loan amount for personal property. My actual loan amount is 1,500,000. I f I prorate it to 1,000,000 to get the right number for mortgage interest ($30000), I will be mis-stating the loan amount. If on the other hand, I put the full loan amount, turbo tax is applying 750,000 limitation, and giving me lower number of mortgage interest ($20000) than I should be legally eligible for. What should I do.
It's just not going to present well since you have the mortgage lien against your personal residence which you are also renting.
I had checked with the lender. They still consider it owner occupied as I am living there and occupy majority of my principal residence.
I had checked with the lender. They still consider it owner occupied as I am living there and occupy majority of my principal residence. this is not relevant for income tax purposes.
workaround
on schedule E enter the $20K as mortgage interest - don't bother entering or linking the 1098 info
on the schedule for mortgage interest
other than below answer the questions
select primary home
Form 1098
for mortgage interest enter $40K
check the box that the amount entered differs from the 1098
enter mortgage origination date
do not enter outstanding principal balance
for explanation of difference enter something like $20K allocated to rental portion of property.
****
on home interest worksheet you'll need to enter $1,000,000 as the outstanding principal balance
based on this you should see $30K on schedule A for deductible mortgage interest
*****************
there's no good way to handle your situation. I could find no means to have Turbotax prorate the principal balance as well as the interest.
Thank you. Yes that seems like a good workaround if TurboTax is not handling a straightforward situation (renting a part of primary home). Will check w a cpa too.
Any one else who has run into this situation?