Discussion:Mortgage Interest Deduction for Rental Property - Schedule A?
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Discussion Forum Index --> Tax Questions --> Mortgage Interest Deduction for Rental Property - Schedule A?
| 17 June 2009 | |
| Alright, I've seen some responses on this issue at this site but I see no code sections so here we go. This person has 150k AGI and one primary residence and a rental property. I want to deduct the mortgage interest (rental property) on Schd A as opposed to Schd E because according to this, "1 other residence of the taxpayer which is selected by the taxpayer" would allow me to deduct on Schd A.
469(j)(7) QUALIFIED RESIDENCE INTEREST. --The passive activity loss of a taxpayer shall be computed without regard to qualified residence interest (within the meaning of section 163(h)(3)). 163(h)(4)(A) QUALIFIED RESIDENCE. -- 163(h)(4)(A)(i) IN GENERAL. --The term "qualified residence" means -- 163(h)(4)(A)(i)(I) the principal residence (within the meaning of section 121) of the taxpayer, and 163(h)(4)(A)(i)(II) 1 other residence of the taxpayer which is selected by the taxpayer for purposes of this subsection for the taxable year and which is used by the taxpayer as a residence (within the meaning of section 280A(d)(1)). I know some firms are doing this and I think these code sections are the reason why. Feedback would be greatly appreciated, thanks a million. | |
| 17 June 2009 | |
| If your client uses the rental property for personal purposes for the greater of 10% or 15 days, then I see no problem with deducting interest on Schedule A. According to the Tax Court, the interest must be allocated based on the number of days rented to the number of days in the tax year.
So, is your client going to evict the regular tenant for 35 days each year? | |
| 17 June 2009 | |
| Yes the person had a temporary assignment overseas so the house was a second residence for 7 months and rented for 5 months while overseas. That would mean about 40% on Schd E and 60% on Schd A. Still a bit tempted to deduct the entire amount on Schd A for rental property. But I'll try to find the tax court rulings and see what those cases look like. | |
| 17 June 2009 | |
| My question would be....how long will the residence be rented? If it rents into the following year then it seems to me that it was converted to a rental and I wouldn't be playing games with the tax deductions. The intent of the rule on 2nd residence would mean a vacation home or other property that is only used occasionally, or not at all, as a residence. | |
RoyDaleOne (talk|edits) said: | 17 June 2009 |
| http://www.irs.gov/publications/p527/ch04.html
This how the IRS say to allocate expenses in the year of conversion. Property Changed to Rental Use If you change your home or other property (or a part of it) to rental use at any time other than the beginning of your tax year, you must divide yearly expenses, such as taxes and insurance, between rental use and personal use. You can deduct as rental expenses only the part of the expense that is for the part of the year the property was used or held for rental purposes. You cannot deduct depreciation or insurance for the part of the year the property was held for personal use. However, you can include the home mortgage interest, qualified mortgage insurance premiums, and real estate tax expenses for the part of the year the property was held for personal use as an itemized deduction on Schedule A (Form 1040). If you are unable to itemize your deductions, there is a new option for deducting real estate tax (see below). Example. Your tax year is the calendar year. You moved from your home in May and started renting it out on June 1. You can deduct as rental expenses seven-twelfths of your yearly expenses, such as taxes and insurance. Starting with June, you can deduct as rental expenses the amounts you pay for items generally billed monthly, such as utilities. When figuring depreciation, treat the property as placed in service on June 1. | |
Death&Taxes (talk|edits) said: | 17 June 2009 |
| "Residence" generally means "any address at which you dwell more than temporarily..." "Dwell" does not mean visit to collect the rent or make repairs, but rather to inhabit or live in.
Of course, in your client's situation it can be split in this year if it truly had split usage. Roy gives the correct cite. You could make a finder's fee from IRS by tipping them off to those other firms, for once the interest and taxes are moved to Sch A, it can create rental profits to use against passive losses, which raises the level to a neglient scheme to avoid taxes. | |
