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If you are depreciating assets used less than 100% for business on Schedule E Supplemental Income and Loss, those assets will be listed on Line 26 or 27 of Form 4562 Depreciation and Amortization (Including Information on Listed Property).

To calculate rental expenses for a property in which you live in one part and rent out the other, first calculate the percentage of the rental portion by figuring the square footage of that part compared to the square footage of the entire property. Apply this percentage to each expense and enter those amounts as the rental expenses.

For the depreciation to calculate, apply the same percentage used previously to the cost basis and this should allow the correct amount of depreciation to calculate for Schedule E.

The mortgage interest and real estate taxes, which are applicable to the rental portion, would be entered on Schedule E. However, the mortgage interest and real estate taxes, which are applicable to the portion of the property you lived in, would be eligible to be entered on Schedule A (Form 1040) Itemized Deductions.

More information, including examples, is available in IRS Publication 527 Residential Rental Property (Including Rental of Vacation Homes), under Renting Part of Property, on page 16.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.


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