Interest allocation rules. The tax treatment of interest expense differs depend-ing on its type. For example, home mortgage interest and investment inter-est are treated differently. "Interest allo-cation" rules require you to allocate (classify) your interest expense so it is deducted (or capitalized) on the correct line of your return and receives the right tax treatment. These rules could affect how much interest you are allowed to deduct on Schedule C or C-EZ.
Generally, you allocate interest ex-pense by tracing how the proceeds of the loan were used. See chapter 4 of Pub. 535 for details.
If you paid interest on a debt secured by your main home and any of the pro-ceeds from that debt were used in con-nection with your trade or business, see chapter 4 of Pub. 535 to figure the amount that is deductible on Schedule C or C-EZ.
How to report. If you have a mortgage on real property used in your business (other than your main home), enter on line 16a the interest you paid for 2014 to banks or other financial institutions for which you received a Form 1098 (or similar statement). If you did not receive a Form 1098, enter the interest on line 16b.
If you paid more mortgage interest than is shown on Form 1098, see chap-ter 4 of Pub. 535 to find out if you can deduct the additional interest. If you can, include the amount on line 16a. Attach a statement to your return explaining the difference and enter "See attached" in the margin next to line 16a.
If you and at least one other person (other than your spouse if you file a joint return) were liable for and paid interest on the mortgage and the other person re-ceived the Form 1098, include your share of the interest on line 16b. Attach a statement to your return showing the name and address of the person who re-ceived the Form 1098. In the margin next to line 16b, enter "See attached."
If you paid interest in 2014 that also applies to future years, deduct only the part that applies to 2014.