On page 7-6, The TaxBook, under the heading Allocating Expenses: Personal vs. Rental, it states deduction expenses for mixed-use property is limited to income and that no loss may be taken. Losses are carried forward. However, under exceptions, it states that certain expenses are allowed in full. It lists interest, taxes, casualty/theft losses, and direct rental expenses. Questions: 1) Can a loss be taken if the exceptions exceed income? 2) What about pro-rated depreciation?
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The rules listed on page 7-6 are basically your office in home rules. It is the same code section.
On a Schedule C, the mortgage interest and real estate taxes allocated to the office in home CAN create a loss on the Schedule C. But utilities, insurance, and depreciation CANNOT cause a loss or increase the loss. Those expenses get carried forward.
No different for a Schedule E mixed use rental.
BTW, mixed use rental does not mean a rental duplex where the taxpayer lives in one half and a renter lives in the other half. Mixed use rentals would be something like a roommate who is paying you rent to live in one of your bedrooms, but you share all kinds of common areas such as the kitchen, living room, bathroom, etc. It also applies to vacation homes where you use it more than 14 days or 10% of total rental days for personal purposes, plus you rent it out to others when you are not using it.
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