When you have a home office deduction for your business, your mortgage interest must be split. The business use of this expense 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, points and private mortgage insurance (PMI) in both the Home Office section and the Form 1098 area of the Itemized Deductions section. We'll automatically split the amount you enter based on how much of your home is used for the business.
For example, suppose you have $10,000 of mortgage interest and the home office percentage of your home is 10%. You would enter the entire $10,000 as an indirect expense on the Home Office Information screen. $1,000 ($10,000 X .10) of the mortgage interest will show up on Form 8829 as a home office deduction.
You would also enter the $10,000 of mortgage interest 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.
What if my total home mortgage debt is over the deductible limit and I'm itemizing deductions?
If you know you're taking the standard deduction, you can opt to enter all the mortgage interest for the home used for your business as excess mortgage interest. However, do NOT enter any amounts as excess mortgage interest if those amounts are also included as deductible mortgage interest.