What mortgage interest is deductible for the home office deduction?

When you have a home office deduction for your business, your mortgage interest and property taxes must be split. The business use of these expenses is reported on Schedule C and Form 8829 (for business use of your home). Your personal use is entered as an Itemized Deduction on Schedule A.

If you are using the simplified method to report home business expenses: You should enter the entire amount of mortgage interest only in the Form 1098 area of the Itemized Deductions section. You do not need to enter any mortgage interest in the Home Office section of your Schedule C. Instead, choose Yes to the question that asks if you would like to use the simplified method to report home business expenses.

If you are NOT using the simplified method to report home business expenses: You should enter the entire amount of mortgage interest in both the Home Office section and the Form 1098 area of the Itemized Deductions section. We'll automatically split the amount that you enter based on how much of your home is used for the business.

For example, suppose that you have $10,000 of mortgage interest and $2,000 in property taxes and the home office percentage of your home is 10%. You would enter the entire $10,000 and $2,000 as indirect expenses on the Home Office Information screen. $1,000 ($10,000 * .10) of the mortgage interest and $200 ($2,000 * .10) of the property taxes and will show up on Form 8829 as a home office deduction.

You would also enter the $10,000 of mortgage interest and $2,000 of property taxes in the Itemized Deductions section. The software will reduce the $10,000 by the $1,000 already taken on Form 8829. So $9,000 of mortgage interest will show up on Schedule A. The $2000 in property taxes will also be reduced by the $200 on Form 8829 and show $1,800 in property taxes on Schedule A.

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