A Reader Asks…

My mortgage is $1550 per month and taxes are $6500 per year. I rent the house out for $1375 per month at a loss every month. BUT… If I file taxes reporting the rental home as an active income generator (at a loss) I can only deduct “X” dollars for my loss (this of course would include maintenance fees, home owners insurance, HOA dues, etc.). If I just deduct the mortgage interest and taxes I get a bigger deduction.
Is it OK for me just to deduct my interest and real estate taxes and get the bigger deduction? Or do I HAVE to report it as an income generating venture even though I take money out of my pocket every month just to hold on to the house?
How would the IRS look at it? The way I see it I get penalized for owning my home and renting it out. I guess I would have to be losing alot more money every month to make it work in my favor…
Any experts out there? Thanks.