If you purchased a duplex so that you can live in one unit and rent out the other, you’ll have to calculate how much of the mortgage interest belongs to the rental unit, and how much to the personal unit.
When it comes to any property that is used for both personal and rental purposes, the IRS allows for any “reasonable” method of calculation. For single family properties, you can either divide the number of rooms being rented by the total number of rooms in the house, or you can divide the square footage rented by the total square footage of the property.
For duplexes, the calculation boils down to the size of the units. If both personal and rental units are of similar size, it’s reasonable to split the mortgage interest and real estate taxes in half. If there is a considerable difference in size, perhaps the square footage method might work best. Mortgage interest allocated to the rental unit can be deducted on Schedule E, line 12. Mortgage interest belonging to the unit used for personal use can be deducted on Schedule A, line 8a. (“Should You Save Your Receipts” offers more information on itemized deductions.)
the Confident Taxpayer 