It depends. What exactly are you purchasing with your land contract? If you are speaking of a contract where the owner is financing your purchase of a home and the land around it, then it would be the same as buying a home. If the owner is financing it, you can still deduct the interest paid on the mortgage payments to the seller. In this case, as you walk through the steps to enter your mortgage interest, you will select this is a seller-financed loan and I did not receive a 1098.
If this is a purchase of vacant land, there is no need to report anything when buying land to build a home on. Land that is not lived on is not deductible and does not count as owning a home or paying rent.
If you are building a home using a construction loan, the interest on that loan is only deductible as an itemized expense if you will be living in the house within 24 months and the loan will be converted to a mortgage.
If you are just paying for land and not building a home on it for several years, then again, the interest on this would not be reported on your return.
The interest is only deductible then if you itemize your return instead of taking the standard deduction. Itemized expenses include mortgage interest, charitable contributions, state and local taxes up to $10,000, medical expenses in excess of 7.5% of your AGI and casualty and losses in excess of 10% of you AGI with the first $100 not counting towards the loss. Your health insurance and all medical expenses are only deductible for the amount that is over 7.5% of your AGI. This means if your AGI is $50,000, then the amount that is over $3,750 is deductible.
Then your total itemized expenses would need to be greater than your standard deduction below in order to benefit from your mortgage interest.
The 2023 Standard Deductions are as follows:
- Married Filing Joint (MFJ) $27,700
- Married Filing Separate (MFS) $13,850
- Head of Household (HOH) $20,800
- Single $13,850
Blind and MFJ or MFS add $1,500
Single or HOH if blind add $1,850
Standard versus Itemized Deduction
(Edited 3/26/24 @ 1:05PM PST) @NeumAntor54
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