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Richard, Tax Attorney
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Experience:  29 years of experience as a tax, real estate, and business attorney.
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Hello, Last year I moved from Wisconsin to Virginia. I did

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Last year I moved from Wisconsin to Virginia. I did not sell my home and decided to rent it out. My question is how do I allocate mortgage interest and property taxes? I also refinanced my mortgage on 8/23/2012. I moved a week later. I had a total of 8038 in mortgage interest between my two loans. I ended up paying a total of 3644 in property taxes.

I lived in the property for 8 months of the year, and rented it for the remaining 4 months. In two distinct areas on the return you are asked what were your mortgage interest and property taxes (that is if you rented the property).

1) In the wages and income section, which calculates how much income was generated from the rental property, do I input the full mortgage interest 8038 and the property taxes 3644, or only for 4 months. In that case 8038 x 4/12 = 2679

2) Furthermore, in the deductions section, it asks you about your mortgage deduction, do you input the full amounts, 8038 for interest and 3644 for taxes - or for the portion of those amounts. So in this case 8038 x 8/12 = 5358.66

Thanks XXXXX
Welcome! My goal is to do my very best to understand your situation and to provide a full and complete answer for you.

Good morning. You allocate the interest and taxes based upon the use of the property. So, on Schedule A, you put the percentage of the interest and taxes for the period it was used as your principal residence...8/12. And, then on Schedule E for your rental income, you include the percentage based on the portion of the year it was rental property...4/12.

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Customer: replied 3 years ago.

Makes sense, but when I do allocate mortgage and interest this way, it says that my total deduction for property taxes was 3337 not the 3644



Thanks for following up. If you paid the 3644 for property taxes, you get to deduct the entire 3644. Thus, you would take 8/12 of that on Schedule A and 4/12 on Schedule E. If the IRS ever questions this, you simply need to show your payments to substantiate this; although the likelihood it will be challenged is basically zero.
Customer: replied 3 years ago.

When I split things up, it says that my total federal deduction is 7733, although my total interest expense was 8038.


It seems you are penalized a little when you rent your home out.


Is this correct?

There are some limitations on rental activity losses which could limit your rental you can be penalized a bit.
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