Currently, TurboTax 2009 does not allocate the mortgage interest amount between your home office and your personal residence if the office was not in operation for the entire tax year. We hope to add this functionality to a future version of TurboTax.
In the meantime, we'll show you how to pro-rate the mortgage interest between your home office and the remainder of your home so you can enter this properly into TurboTax. You'll be entering the information twice – once in the business section and again in the Deductions & Credits section. For illustration purposes, we'll use the example below.
Example – Let's say you established a home office for the last part of the year, August 2009 – December 2009 (5 months) and the total mortgage interest you paid for 2009 was $10,000.
Step 1: Allocate the interest
Using your monthly mortgage statements, add up the mortgage interest for the months the home office was not in use versus the months it was in use. Using the example above, we'd add up the mortgage interest for the January through July statements (to get a figure for the personal residence) and the August through December statements (to get another figure for the home office).
If you don't have all your monthly statements, simply take the total amount of interest and divide by 12 months. Using the example above, $10,000 / 12 = $833 per month. Then multiply $833 by the number of months the home office was in use to arrive at a figure (in this case, $833 x 5 months = $4,165).
Step 2: Enter the home office allocation
Follow these steps:
- In TurboTax, click the Federal Taxes tab, choose Wages & Income, and proceed to the Home Office Summary. If this is the first time through this section, this will be the ”Do You Have an Office in Your Home?” screen. (In the Home & Business version, you'll find this on the Business tab instead.)
Reminder: On the “Tells Us More” screen in this section, do not forget to check the box “I owned the home where I had this office”.
- When prompted for the Total Interest Paid, enter the total interest amount with the home office allocation amount; in this example, $4,165.
On the “Enter Expenses for Your Entire Home” screen, you will see the mortgage interest amount already populated, which is correct. Do not enter anything for mortgage interest here. Once the prorated amount has been entered, we will enter the personal mortgage interest amount to be reported on the Schedule A.
Step 3: Enter the personal residence allocation
Here you'll enter the interest allocated to the personal residence, which in this example would be $5,835 ($10,000 minus $4,165).
- Click the Federal Taxes tab (Personal in Home & Business), and then Deductions & Credits.
- Under Your Home, click Update or Start next to Mortgage Interest. You'll see the interest amount entered in the business section showing up in the 2009 Amount column.
- On the “Home Loan Deduction Summary” screen, click the Add a Lender button.
- Enter the name of the lender and when prompted for box 1 of your 1098 form, enter the remaining interest amount not reported during the business section. In the example we are using, it would be $5,835.
- Once done, you will see the total amount of mortgage interest appear in the 2009 Amount column, or $10,000 in this example.
On the Schedule A, line 10, the amount that shows may not be the entire amount reported on the 1098 you received. This is due to the deducted amount already reported on Form 8829: Expense for Business Use of Your Home.