Tax Reform Update: Employee business expenses can be claimed on Form 2106 Employee Business Expenses only by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses.
Home mortgage interest and real estate taxes are transferred to Schedule A (Form 1040) Itemized Deductions in the following circumstances:
IRS Form 8829: Total home mortgage interest and total real estate taxes should be entered on Form 8829 Expenses for Business Use of Your Home in the Indirect expenses column on Lines 10 and 11. The total amounts should also be entered in Schedule A on Lines 6 and 10. The percentage amount calculated as a deduction on Form 8829 will transfer to Schedule A as a deduction from the totals entered to arrive at the remaining amounts to be itemized on Schedule A.
IRS Form 2106 (entered on Form 2106 Business Use of Home Worksheet): Total home mortgage interest and total real estate taxes should be entered on IRS Form 2106 Business Use of Home Worksheet in the Indirect expenses column on Lines 6 and 7. The total amounts should also be entered in Schedule A on Lines 6 and 10. The amounts entered on Form 2106 will be used to calculate the deduction limit, however, the deduction of home mortgage interest and real estate taxes will remain on Lines 6 and 10 of the Schedule A.
IRS Schedule E: Total rental income property mortgage interest and real estate taxes should be entered on Schedule E (Form 1040) Supplemental Income and Loss page 1, on Lines 12 and 16 and has no effect on Schedule A unless your deductions are determined to be limited (see below). If they are limited, some of the amount entered on the Schedule E may flow back to the Schedule A and would then be added to the personal interest you have already entered on the Schedule A.
If you sometimes use your rental property for personal purposes, you must divide your expenses between rental and personal use. Enter the rental expenses on Schedule E and the personal expenses (eligible for itemized deductions) on Schedule A. Entering the days of personal use and days the property is rented on Schedule E does not prorate the expenses between personal and rental. The entry of days is only used for the calculation of the Vacation Home Limitation Worksheet, if it is necessary, or the determination that there was only minimal rental use.
Your rental expense deductions may also be limited if you sometimes use your rental property for personal purposes at any time during the year. The days of personal use and days rented at fair market value would need to be entered on Schedule E and the program will determine if the Vacation Home Limitation Worksheet applies and if any of the rental expenses need to be carried back to Schedule A to be added to the personal portion already entered on Schedule A.
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