To claim rental expenses for a duplex where you live in one unit and rent the other, you would normally enter half of the expense amounts into the program. In a situation when one side of the duplex is larger than the other, you will need to compute the expenses based on square footage.
To determine the rental expenses of the unit that you rented out, you would first need to determine the percentage of business use based on the square footage of that unit compared to the total square footage of the duplex (both units). You would then need to pro-rate the rental expenses based on that percentage, and enter your calculations for the rented unit on a Schedule E (Form 1040) Supplemental Income and Loss. Since you did not live in the rental unit, do not enter any days of personal use.
If you lived in a unit for part of the tax year and rented it for part of the tax year, you will need to do another Schedule E for the rental expenses for that unit. You would also need to determine the pro-rated percentage of that unit, and do the manual calculations to enter on Schedule E. If you do this additional Schedule E, you will need to enter the number of days used for personal use and the number of days rented. Your rental expenses will then be limited.
The mortgage interest applicable to the unit you lived in would be entered on Schedule A (Form 1040) Itemized Deductions. The personal mortgage interest amount is based on the square footage percentage of that unit and on the percentage of days used for personal use in the year.
For more information, go to IRS Publication 527 Residential Rental Property (Including Rental of Vacation Homes) under Renting Part of Property page 16.
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