[quote=NotCranky]you were talking about a second dwelling on your parcel , scaredy. You might want to look into how much mortgage and property tax you can take off the top of the rental income from a 2 on 1.
Can anyone lay out how that works? In my case it seems to be great, but I don’t have much knowledge about how my accountant does it(justifies it with the IRS) .[/quote]
I can address that point as we live in a 2 on 1. Our tax advisor recommended that we split by square footage of the living space. So I calculated the ratio of the square footage of the rental unit vs our home. That ratio is applied to property tax and mortgage interest. I have a big Excel sheet that figures all this out, but the percentage of interest and property tax related to the rental unit shows up on Schedule E, with the remaining residence portion going on Schedule A.
That square footage ratio was also applied to the “improvements” portion of the original tax assessment for the purposes of calculating the depreciation basis on the rental unit. I’m sure it’ll be fun to unwind all that when it comes time to sell.
