Your accountant is right, your broker is wrong. Actually, your accountant left out an option -- you could take all of the interest on Schedule E. The choice of how much interest (of the up to $100,000 of principal) may be affected by issues such as your AGI, other deductions, and rental gain/loss before considering the interest deduction.You will want to minimize your taxable rental income, but if your AGI is too high or you do not actively manage the rental, you will not want to show a passive loss, so you will want to put "more" interest on Schedule A.If you do not otherwise itemize deductions, you may get more tax benefit from taking all the interest on Schedule E.If you are in the phase out region for itemized deductions, you may get more tax benefit from taking all the interest on Schedule E. Your accountant can work out the scenarios based on your specific situation.Ira
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