1098 Construction Loan

[CindieMVP]

Turbo Tax asks about details for the construction loan

Is this loan a Home equity line of credit (HELOC) or refinance of previous loan?

We owned land and got a construction loan to build our house.  The appraisal did not quite cover the cost of the new home we are building so they had to put a lien on the house we are selling.  So is this considered a HELOC?

[VictoriaD75]

No. A home equity line of credit (HELOC) is a loan you take out against the equity of your property through a financial institution or lender. It is often used for things like renovations. If the contractor put a lien against your previous home to cover the difference of the construction costs, this is not a HELOC. The contractor is protecting their financial interest in the construction of your new home. By placing the lien, they will be ensured a payout on the sale of your previous home.

@CindieMVP 

[CindieMVP]

• Thank you for your answer.  So is it considered a refinance? TurboTax asks if it's a HELOC or Refinance?
• If neither a HELOC or Refinance, then turbotax will not deduct interest.   Thank you again! 

[Vanessa A]

Neither. The interest, whether it is from the contractor or a bank, would not be deductible since it is on a home OTHER than the home that the loan secures. In order for interest to be deductible, it has to be used to buy, build or substantially improve the home that secures the loan.  

Since you are using this loan to build a NEW house and the loan is being used to build a NEW house, the interest wouldn't qualify as deductible regardless of whether or not it is a HELOC or Refinance. So you would not enter this on your return.