The mortgage interest is deductible for the primary and one secondary home.
There is no guarantee that the law would not be changed in the future. So far - I am not aware that this deduction will be taken away any time soon.
If you will use the property as rental - all expenses - including mortgage interest and depreciation will be deducted against rental income.
You would need to prorate rental use and personal use - probably according time the property is used for each purpose.
If you will have rental losses - they are generally deducted against your other taxable income - however there are some limitations on deductions.
Please let me know if you need any clarification or any details related to your situation.
As you will rent the property four months out of twelve - it will be considered 33% as rental and 67% as personal based on its use.
Property taxes are fully deductible - on the schedule A (assuming you itemize)
Mortgage interest is also deductible - 33% on the schedule E as rental expenses and 67% on the schedule A.
Insurance, utility cost - only 33% are deductible on the schedule E as rental expenses; other part would be considered as personal and is not deductible).
Rental income should be reported as income on the schedule E.
The 33% of the property cost should be depreciated and that will be expense.
Let me know if you links to forms.
The residential rental property depreciated over 27.5 year period.
So assuming you paid for the property $500,000 and it is used as rental 33% of the time - the cost basis for depreciation will be $500,000*33%=$165,000
Every year you will deduct $165,000/27.5=$6000
However at the time you sell the property - depreciation should be recaptured and added to your taxable income.
You may need to become familiar with the IRS publication 527 - http://www.irs.gov/pub/irs-pdf/p527.pdf - please be aware that it is not updated for 2008 yet.
You are absolutely correct. Your payment and the bonus were applied as you wanted.
Appreciate that and your warm words.
Would be glad to help you with any other tax related issues in the future.