[jessanqi]

I don’t understand why take only one half the realty tax? I know we cannot deduct personal interest, but we should deduct real property tax anyway right?

Question #3
Donald Duval owns a two-family home. He rents out the first floor and resides on the second floor. The following expenses attributable to the building were incurred by Duval for the year ended December 31, 20X5:

Expenses for

Entire Building
First Floor
Second Floor
Depreciation
$2,000

Realty taxes
$1,800

Mortgage interest
$1,200

Utilities
$1,000

Repairs

$300

Painting

$400

What portion of the expenses can Duval take as an itemized deduction on Schedule A of Form 1040?

Correct Answer: $1,500

Notes
The correct answer is A. Schedule A deductions include the deductible taxes and interest, which a homeowner is entitled to take in figuring his taxable income. Duval may deduct one-half of the real estate taxes and one-half of the mortgage interest expense. No part of depreciation, utilities, or repairs are deductible for one’s personal residence.

Realty taxes (1/2 x $1,800)
$900
Mortgage interest (% x $1,200)
$600
Total
$1,500

[KaliKingz]

The facts state that the property is a two family home. So you deduct half of the mortgage int and prop tax on Sch A as an itemized deduction, and the other half is deducted on Sch E.

[jessanqi]

Hi Kalikingz,

Thanks so much for the help!

So that means the total amount for realty taxes deduction is still $1800. just half part personal use on sehedule A, and half part business use on Schedule E. is this correct?

Thank you!!

[ninjacpa_hck]

@jessanqi
that is correct. since half part are personal use house they are “qualified residence” for deductions (itemzied) on mortgage interest and realty tax. Since another half is “for rent”, and any rental activity are generally automatically being conisdered as passive activity that generates passive income = which are reported on Schedule E. And of course, Schedule E is where the another half of the mortage interest and realty tax would be reported as well.

Notice, “the mom and pop” exception applies when one materiality participate in managin the rental acitivty.

[jessanqi]

Thank you so much @ninjacpa_hck!! 🙂

[Author]

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