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My question is who is right or does it make a difference?

I think both are right, as far as they've gone. There is definitely a limit on Schedule A nonacquisition home mortgage interest: interest on $100,000. However, I see no reason why this would not be fully deductible on Schedule E.

However (doncha love tax law?), as previously noted, there are limits on the losses that you can realize from passive activities, including this type of rental. The limit is based on your AGI.

A Schedule E deduction is usually better than a Schedule A deduction because it lowers AGI. However, if you can't benefit currently from the Schedule E deduction because of the passive loss limitations, you'd probably be better off taking what you can on Schedule A and putting the rest on Schedule E.

Finally, in general, CPAs are better tax advisors than morgage brokers. I second the recommendation that you have your CPA thoroughly explain the issues to you. You can do a little pre-reading in IRS Publications 550 and 527.

Phil Marti
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