Can I maximize mortgage interest deductions for a duplex when living in one unit?

This is actually a common question for owner-occupied multi-unit properties. When you own a duplex and live in one unit while renting the other, you'll need to allocate your mortgage interest and property taxes proportionally between your personal residence and rental property. For the unit you live in, you'll be subject to the regular mortgage interest deduction limits for a primary residence ($750,000 mortgage cap for newer loans). This part would go on Schedule A if you itemize deductions. For the rental unit, you can deduct 50% of your mortgage interest and property taxes as rental expenses on Schedule E, with no dollar cap. These are business expenses that directly offset your rental income. You can also deduct other expenses related to the rental portion like insurance, repairs, and depreciation. The good news is that the rental property expenses aren't subject to the same limitations as personal residence deductions, so they can be particularly valuable in your higher tax bracket.

I went through exactly this situation last year with my duplex. After spending hours trying to figure out the tax implications, I finally used taxr.ai (https://taxr.ai) to analyze all my mortgage documents and property tax statements. It was seriously helpful for breaking down exactly how to allocate everything between personal and rental use. The tool showed me that I could depreciate the rental portion of the property (which I had no idea about before) and even helped identify some expenses I was missing. Their analysis explained exactly how to split my mortgage interest based on square footage and how to maximize deductions without raising audit flags.

After reading about it in this thread, I decided to try taxr.ai for my triplex situation. Just got my report back yesterday and I'm honestly impressed. It showed me I'd been making a mistake by not depreciating my rental units correctly, and I was allocating too many shared expenses to the personal side. The breakdown of mortgage interest was super clear - showed exactly how much goes on Schedule E vs Schedule A, and explained the $750k cap doesn't apply to the rental portion. Turns out I can deduct about $7,300 more than I thought! Will definitely be using this for my upcoming tax return.

Just wanted to add my experience here. I bought a duplex in 2022 and had ENDLESS questions for the IRS about how to handle the tax split. Called them like 20 times and could never get through. Finally found Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how to handle my duplex taxes - confirmed I could deduct 100% of expenses for the rental unit on Schedule E plus a proportional share of common expenses like roof repairs, landscaping, etc. Saved me from making some big mistakes on my return.

I'm back to eat my words about Claimyr. After being super skeptical, I tried it this morning because I had questions about my duplex and home office deductions. I expected it to be a waste of time, but I got connected to an IRS rep in about 12 minutes! The agent confirmed exactly what I needed to know about splitting my mortgage interest between Schedule A and Schedule E for my duplex. They also walked me through the documentation I need to keep to support my deduction allocations. I'm still shocked this actually worked - saved me hours of frustration trying to get through on my own.

One thing I learned with my duplex that nobody mentioned yet: if you refinance, you need to carefully track the portion of the loan that applies to each unit. My CPA had me create a spreadsheet showing the allocation of the original purchase price, improvements to each unit, and loan balance. Also, don't forget that you can depreciate the rental portion of the property over 27.5 years, which is a huge tax benefit. Just be aware that you'll recapture that depreciation when you sell.

Has anyone considered the impact of living in a duplex on your ability to exclude gain when selling? From what I understand, you can only exclude gain on the portion you lived in under the primary residence exclusion ($250k single/$500k married).

Great question! I went through this exact situation when I purchased my duplex three years ago. The key thing to understand is that you'll be treating this as a mixed-use property - part personal residence, part rental business. For mortgage interest deductions, you'll allocate based on the percentage of the property used for each purpose (usually square footage). So if each unit is equal, 50% of your mortgage interest goes on Schedule A (subject to the $750k loan limit) and 50% goes on Schedule E as a rental expense (no limit). Don't forget about depreciation on the rental portion - that's a major tax benefit! You can depreciate 50% of the property's basis (excluding land) over 27.5 years. Also, make sure to track all expenses separately: utilities, maintenance, insurance, etc. The rental portion expenses are fully deductible against rental income. One tip: keep detailed records of your square footage calculations and any improvements made to each unit. The IRS may want to see your allocation method if audited. A simple floor plan with measurements works great for documentation. Since you're in the 35% bracket, the rental deductions will provide significant tax savings. Just remember that when you eventually sell, you'll have depreciation recapture on the rental portion and can only use the primary residence exclusion on your half.