Questions on mortgage interest deduction with rental become primary

I have a question on the mortagage interest itemized deduction.

I have a property from rental to personal primary home in 2023. The mortgage amount is greater than $750,000

My understanding is that for the part of interest I paid at the time for rent, I can have all the interest deducted for rental income, while for the part of my personal usage, it is subjected to 750,000 cap, is that correct?

If so, it seems turbotax is auto putting the mortgage interest as itemized deduction after I typed the mortagage interest for rental and disregard the 750,000 cap.

2483

Expert Alumni

Apr 3, 2024 3:31:12 PM

Yes, you are correct. It is the personal portion that is being limited specifically for itemized deductions. This type of situation becomes complex for the mortgage interest calculation.

Enter in your rental expenses only the rental portion of mortgage interest, then use the rest for your personal return. Your rental property was 100% rental until you converted it to personal use. Do not use rental days in your rental activity. Instead use 100% business use, then select This item was sold……, and then Select 'Yes' for Special Handling due to 'You converted the asset to 100% personal use'.
You will use the average mortgage balance at the end of the year for your itemized deductions. Use the worksheet in IRS Publication 936 to arrive at the correct mortgage interest for your home, allowed on itemized deductions.

Level 1

Sep 28, 2024 1:07:31 AM

Hi,

I've run into another problem when follow your instruction. I get the form 4797 from turbotax afterward, which after observation, tried to recapture the rental deprecation (27.5 years). This is not correct, only section 179 deprecation should be recaptured but rental deprecation is not one of them.

How to deal with this problem? Am I doing anything wrong?

Thanks,

Why sign in to the Community?

Questions on mortgage interest deduction with rental become primary