Occasionally homeowners need to relocate, and if the real estate market is down, it might not be the ideal time to sell the family residence. Many homeowners deficiency enough equity in their home to cover a purchase, or might take a significant loss if forced to sell in a down market. In those scenarios, renting out the first home until the real estate market turns up is frequently the ideal method for homeowners to cut their losses. The Internal Revenue Service permits for a mortgage-interest deduction for both a main residence and a rental property, however, the deductions have been taken on different tax types.
First Home
Print a copy of Schedule A from the IRS web site.
Enter the amount of interest paid for your main, or first, home at the”Interest You ” section of Schedule A. Notice that you enter”Home mortgage interest and points reported to you on Form 1098″ on a separate line from”Home mortgage interest not reported to you on Form 1098.”
Input your other itemized deductions on Schedule A. Itemized deductions include things such as taxes paid, charitable contributions and medical costs.
Total all the amounts and enter the total in the bottom of the form. When the standard deduction for the tax year is greater than your itemized deductions, use the standard deduction to maximize your tax savings.
Rental Property
Print a copy of Schedule E from the IRS web site.
Enter the information that is basic for the property in the top section of Program E.
Enter the interest paid to the rental property loan in the”Expenses” section of Program E. Notice that you enter”Mortgage interest paid to banks” on a separate line from”Other interest” paid to other sources, such as individuals.
Complete the remainder of Schedule E, coverage all income from renting the home and all expenses connected with renting the home.
Enter the net of income and cost in the bottom of the first page of Program E and on the related line of Form 1040.