Today TaxMama hears from Phillip in the Tax Parlor who wants to know, ” My wife and I purchased land with the intent to build on it. We have been paying on an interest-only land loan for over a year. Can I deduct this interest for 2006? We have a home already in which we also deduct the mortgage interest. ”
Here’s the deal.
If you’re holding land to build on, it’s an investment.
In fact, IRS has this very same question on their website. Did you get it from there? ;~)
Question 3.6 http://www.irs.gov/faqs/faq-kw96.html
”I have a mortgage for my primary residence and a second mortgage for land that I intend to build a home on. Can the interest be deducted for the second mortgage?
IRS Replies – Unless you have begun construction of a home on the bare land that you can occupy within 24 months, the land would be considered an investment and the interest you paid on the second mortgage would not qualify as deductible mortgage interest. However, it would constitute investment interest if you itemize your deductions. For more information, refer to Publication 550, Investment Income and Expenses, Chapter 3 and Publication 936, Home Mortgage Interest Deduction.”
You can read more about the limits on the investment interest deduction in IRS Publication 550
And remember, you’ll find answers to lots of questions about investment interest and other tax information, free. Where? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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- IRS Publication 550 :: Investment Income and Expenses