A client has a $300k promissory note for vacant land in NC - sellers are a married couple. There is no 1098. There only other mortgage is for their primary residence - mortgage balance is $250k. What are the determinations for this to be treated as a home mortgage deduction vs investment interest deduction?
I have a mortgage for land that I intend to build a home on. Can I take the home mortgage interest deduction?
Answer
No, you can't deduct interest on land that you keep and intend to build a home on. However, some interest may be deductible once construction begins. You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it's ready for occupancy. The 24-month period can start any time on or after the day construction begins. As a qualified home, the interest paid may qualify as deductible mortgage interest, with certain limitations.
Can the interest paid be added to the basis up to the time they begin building a home? And if so, would I attach the election to capitalize the interest each year?
I have a mortgage for land that I intend to build a home on. Can I take the home mortgage interest deduction?
Answer
No, you can't deduct interest on land that you keep and intend to build a home on. However, some interest may be deductible once construction begins. You can treat a home under construction as a qualified home for a period of up to 24 months, but only if it becomes your qualified home at the time it's ready for occupancy. The 24-month period can start any time on or after the day construction begins. As a qualified home, the interest paid may qualify as deductible mortgage interest, with certain limitations.
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