Sch A, Strategic move or mistake?

[Possi]

My client moved back into the house that they rented to tenants while stationed in another state.

They moved back in, the first of July. So, Mortgage Interest and RE tax would be split 50/50 between A and E.

BUT, if I split them, the Sch A will not bite, and they lose some of the Int and RE tax.

Is it legal to put it all on the Sch A so I can take the full deduction? Seems like a good strategy to me. And since they did indeed pay it all, I don't see why not.

[Terry D EA]

Quote

My client moved back into the house that they rented to tenants while stationed in another state.

They moved back in, the first of July. So, Mortgage Interest and RE tax would be split 50/50 between A and E.

BUT, if I split them, the Sch A will not bite, and they lose some of the Int and RE tax.

Is it legal to put it all on the Sch A so I can take the full deduction? Seems like a good strategy to me. And since they did indeed pay it all, I don't see why not.

I am going to look into this a bit deeper as I have the same scenario. When a person converts rental property to personal use, only those expenses for the rental days can be taken on Sch E. However, It would only seem right to deduct the remainder on Sch A. Interesting and I am looking forward to what others have to say. I will post what I find from my research.

[Terry D EA]

Take a look at Pub 527 page 17. It is pretty clear that dividing the expenses is permissible. This is to be done by using the number of days of personal use divided by the number of days of rental. This returns the percentage of rental expenses and personal expenses. The division of the two must equal the total expenses for the item that can be split. These items are mortgage interest, property taxes and mortgage insurance. The other expenses such as repairs and depreciation can only be taken for the rental days and you loose on the personal use end. I know the publications are not always authoritative but it is a good guide to go by.

[JohnH]

Maybe I'm reading this incorrectly, but if using 50% of the interest and prop taxes on schedule E leaves them without enough deductions to itemize on A, they haven't lost anything. The undeducted personal portion of mortgage interest and property taxes isn't really "lost". It's just overridden by a larger allowance via the standard deduction. You want to reduce the rental income as much as possible before making the itemized vs standard deduction on the schedule A. If standard deduction is greater, the excess is a freebie. 

[TAXMAN]

OK but what if you are in a state that has a rather small standard ded. Maybe forcing the A use may benefit more. I know that sometimes in VA I have to look at both ways. I guess this would be a state by state option. Just my take.

[SaraEA]

Can't your clients dig up another $4k they gave to charity so they can itemize?  What kind of stingy clients do you have?

[TAXMAN]

I gonna repaint my ceiling this summer. Dang numbers are hiding up there.

[Possi]

9 hours ago, JohnH said:

Maybe I'm reading this incorrectly, but if using 50% of the interest and prop taxes on schedule E leaves them without enough deductions to itemize on A, they haven't lost anything. The undeducted personal portion of mortgage interest and property taxes isn't really "lost". It's just overridden by a larger allowance via the standard deduction. You want to reduce the rental income as much as possible before making the itemized vs standard deduction on the schedule A. If standard deduction is greater, the excess is a freebie. 

This is a theory I had not considered. You are absolutely right. Wow. Thanks for that insight.

[RitaB]

9 hours ago, SaraEA said:

Can't your clients dig up another $4k they gave to charity so they can itemize?  What kind of stingy clients do you have?

Or $18,000 in cosmetic I mean required operations?

[Terry D EA]

In my situation, my client is already itemizing so the additional will be a benefit.