Here's a tax guru question regarding homes and rentals. My fiance and I both own apartments and each of them have mortgages of roughly $400,000 outstanding. Late this year, we bought an apartment together and rented our original places. The mortgage on the new apartment is about $700,000. Additionally, I have a HELOC of about $80,000, fully tapped, on the apartment I own myself.
1. Filing separately, there is a $550,000 cap on the total loan that can be used for an interest deduction. $500,000 for the mortgage and another $50,000 for the HELOC. In my fiance's case her apartment was rented the full year, so she cannot claim her place for personal use and must take her mortgage interest as a write down of rental income. On the other hand, I only rented my place for the last four months of the year. Can I choose whether to report my mortgage as an interest deduction instead of a rental income write down?
2. My fiance and I are co-owners of the apartment with the $700,000 mortgage. Obviously that is going to go over the limit for an interest deduction. Who claims the interest deduction? Can we split it? If we can split it, do we first apply the cap to determine the reportable interest and then divvy it up?
3. At no point did TaxCut ask me the absolute size of the mortgages when doing the interest deduction. If I hadn't read over
the IRS publication on the topic I would never have known it existed. Is this a straight up bug/miss in the software? Or did I do something wrong in using it? Seems very odd to me that it wouldn't ask when there's an obvious cap. Unless I misunderstood the cap completely.