Mortgage interest limitation as it relates to a vacation home with rental income

You have a single mortgage legally secured by two different properties? Or did you use the cash proceeds of an equity refinance on one property to acquire the other?

You figure out the mortgage expense on the rental that is a deduction against rental income, then carry the remainder to Schedule A and apply the various deductibility limits there.

Fill out Schedule E before Schedule A, then indicate where you are stuck.

-Mark Bole

There are two properties and two different mortgage loans obtained when each of the properties was purchased. The combined mortgage debt is $1.3M. The interest on the vacation home is $37k of which $31k can go to schedule E based on the rental % (that leaves $6k for Sched A). The mortgage interest on the primary home is $43k. According the Pub

936, interest expense on mortgage debt is limited as follows: $1.0M/ $1.3Mw% so only 77% of the total interest can be deducted on Sched A. Since part of the $37k of the interest went to Schedule E, is the 77% applied to the $43k interest on the primary home, or only on the $6k which is the personal portion of the vacation home??? or to both the $43k and the $6k???

Thanks.

So total mortage interest is $80k.

77% of $80k = $61.6k.

Schedule E gets $31k.

Schedule A gets $6k (rental) + $43k (home) = $49k. Since that's less than the limit, it stays there.

Seth