[ocboa]

I’m a little confused on how to treat inv int expense as it relates to rental property. If u own a residential rental property and finance the purchase, how do u treat the int expense. Do u offset the rental income by the int expense on schedule E with the int expense deduction being limited to rental income

I know Becker spoke of investment interest expense being a schedule A itemized deduction. Is it handled on schedule a not e in cases where u borrow money to invest in a taxable bond for instance?

[s2sylvir]

If the rental property has its own bank account that's earning interest, that interest is reported on Sch B, not on Sch E. Since rental is passive income and interest is portfolio. By that same token, investment interest expense is not recorded on Sch E either. It should always be on Schools A.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[ocboa]

this is where my confusion stems, because if you have a passive activity like owning a rental building, and you took out a mortgage to finance the purchase, then you will obviously have interest expense. Your passive rental activity (income or loss) flows through to your 1040 via schedule E. To determine your rental income or loss wouldn't you start with rental income and deduct depreciation, other expenses, and the interest expense?

[s2sylvir]

Okay, the “investment interest expense” that is specifically a mortgage interest expense, yes that is deducted on Sch E. But another type of “investment interest expense” as I explained above, is incurred on portfolio income, and that is only deductible on Sch A, even if it's the rental property who owns the bank account.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
FAR - PASS (58, 89)

Becker for all + FAR 10 Point Combo

[Author]

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