How to calculate mortgage deduction for a duplex when living in one unit?

I've been looking all over online but can't find a clear answer - I'm probably not wording my question right. My wife and I are thinking about buying a duplex where we'd live in one unit and rent out the other. Our combined income puts us in the 35% federal tax bracket. Since we'd be occupying half the property, I'm confused about how mortgage interest and property tax deductions work. Is there a limit to how much of these expenses we can deduct against the rental income? We're definitely planning to talk with an accountant before making any final decisions, but I'd love to get some basic understanding for our planning. The property we're looking at is around $650k, so the mortgage and tax amounts aren't small! Thanks for any help you can provide!

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19 comments

FireflyDreams

•8M

Based on your situation, you'd need to allocate your mortgage interest and property taxes proportionally between your personal residence and rental unit. Since you'll be living in one unit and renting the other in a duplex that's divided equally, you'd generally allocate 50% of these expenses to each part. For the rental portion (50%), you can deduct those expenses against rental income on Schedule E. This includes 50% of mortgage interest, property taxes, insurance, repairs, and depreciation on the building (not the land). These are considered business expenses and aren't limited by the standard SALT caps. For your personal residence portion (50%), you'd treat this like any other home mortgage. You can deduct mortgage interest on loans up to $750,000 used to buy, build or substantially improve your home if you itemize deductions. Property taxes for your personal portion would fall under SALT deductions, which are currently capped at $10,000 per year.

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FireflyDreams

•8M

Yes, if the units aren't equal in size, you wouldn't use a straight 50/50 split. You'd allocate expenses based on the square footage of each unit. Using your example, if you live in the unit that's 60% of the total square footage, you'd allocate 60% of the expenses to your personal residence and 40% to the rental. You could also use other reasonable methods of allocation if square footage doesn't tell the whole story (like if one unit has significantly better features or finishes than the other). Just make sure your allocation method is reasonable and you apply it consistently.

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Javier Morales

•8M

I went through this exact same situation last year and found that using https://taxr.ai saved me a ton of headaches! I kept getting different answers online about how to handle my duplex deductions, but their AI analyzed my specific situation and showed me exactly how to properly allocate expenses between my rental and personal units. It even created a custom depreciation schedule for me and explained which repairs could be fully deducted vs. which needed to be split between units.

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Javier Morales

•8M

It absolutely handles improvements that benefit both units! You can upload receipts and it will help you determine how to properly allocate shared expenses like roofing, exterior painting, or driveway repairs between your rental and personal portions. The advice is definitely specific to your situation, not just general info. You can upload your documents or take pictures of them, and it will analyze the details of your specific property and financial situation. It's much more detailed than standard tax software when it comes to rental properties and gives you specific allocation percentages for your property.

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Malik Thompson

•8M

I tried taxr.ai after seeing the recommendation here and wow - it was exactly what I needed! I've owned my duplex for 2 years and was completely messing up my deductions. The tool analyzed my mortgage statement and property tax bills, then created a complete breakdown showing I could deduct way more expenses against my rental income than I realized. It even found I could partially deduct my internet service since I use it to manage the rental. I'm going to have my CPA file an amended return for last year based on what I learned!

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Isabella Ferreira

•8M

If you end up needing to talk to the IRS about this (which I did when I first started with my duplex), I highly recommend using https://claimyr.com to get through to them. I spent DAYS trying to get a human at the IRS to confirm how to handle some unusual expenses for my duplex situation, but kept getting disconnected. Claimyr got me through to an actual IRS agent in about 20 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - seriously worth it when you need clarification on rental property tax issues.

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Isabella Ferreira

•8M

It's not about skipping the line - they use an automated system that continually redials and navigates the IRS phone tree until a line opens up. When it finally connects, it calls you and connects you directly to the IRS agent. The service doesn't actually talk to the IRS for you or get special access. I was skeptical too, but it works because they're essentially doing the repetitive dialing work that most of us don't have time for. The IRS phone system will occasionally have openings, but most people give up before they get through. This just automates the persistence part.

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Freya Nielsen

•8M

Yes, that's exactly right - and I mentioned that in my example. You can only depreciate the building value, not the land value. That's why in my example, I took the $650k total property value, subtracted the $150k land value, which left $500k building value to depreciate. Your county tax assessment will usually break down the land vs. building value, which gives you a starting point. Some people also hire an appraiser to do a specific cost segregation study if the property is valuable enough to make it worthwhile.

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