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How Do I Deduct Mortgage Payments on a Duplex I Live in?

by Martin G. Laffer, CPA

I own a duplex. I live in one unit and rent the other. Can I deduct all of my mortgage and property taxes, or can I only deduct half of them?

Although a single structure, a duplex is treated for tax purposes as two separate and distinctly different properties. The portion of the duplex in which you and your family reside is considered a "principal residence," while the rental portion is treated as rental property.

For a principal residence, a taxpayer may deduct mortgage interest, subject to certain limitations, as an itemized deduction along with the portion of real estate taxes (for the principal residence allocation). The taxpayer may use the itemized deductions if the aggregate exceeds the standard deduction for the taxpayer.

The portion of mortgage interest and real property taxes allocable to the rental portion of the structure is deductible along with maintenance, leasing commissions and other direct operating expenses against rental income. In addition, the portion of the structure used for rental purposes may be depreciated. There are a number of limitations on the deductibility of rental losses against other types of income. You should consult with a professional tax adviser such as a CPA for the details of the limitations.

Martin G. Laffer, CPA, CFF, CFE, is a partner in the firm of Laffer & Gottlieb, CPAs. You can reach him at (310) 274-7600.

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In accordance with IRS Circular 230, the information on this website is not intended or written to be used, and cannot be used as or considered a "covered opinion" or other written tax advice and should not be relied upon for the purpose of avoiding tax-related penalties under the Internal Revenue Code; promoting, marketing, or recommending to another party any transaction or tax-related matter(s) addressed herein; for IRS audit, tax dispute or other purposes.