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drove5
New Member

Can mortgage interest on a land loan be deducted if a home will be built on it next year? A prior answer on this forum says yes, but the IRS FAQ's says no.

Hello: I'm pasting below the conflicting pieces of advice on mortgage interest on a land loan. Any further thoughts on whether or not one can deduct interest when building a home on the land next year (construction has not yet begun)? I'm naturally inclined to side with the advice on the IRS website, but want to assure I'm not missing something. 

From IRS Website:

"Question: I have a mortgage for land that I intend to build a home on. Can I deduct the interest for the mortgage?

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.

https://www.irs.gov/faqs/itemized-deductions-standard-deduction/real-estate-taxes-mortgage-interest-...


From Similar question on this Turbotax forum: 

"Can i claim the interest on my land loan:
Answer: Like many tax questions, the answer to whether or not you can deduct the interest on land that you own is, "It depends." You cannot deduct interest on a lot that you hold for personal use at some point in the future. However, if the lot is an investment or will be used to build a home relatively quickly, you can deduct the mortgage interest, subject to some limitations.


Lot for Personal Construction 
Interest on land can be deductible if you intend to build a house on it. You can claim a mortgage interest deduction if you will be completing and moving into the home within 24 months of when you start claiming the write-off. The deduction covers your loan on your lot as well as your construction loan, if any. To be able to claim this write off, the house under construction must be your first or second house, and your total mortgage debt must be $1.1 million or less."


Any further input would be appreciated. Thanks!


1 Best answer

Accepted Solutions
MichaelL1
Level 15

Can mortgage interest on a land loan be deducted if a home will be built on it next year? A prior answer on this forum says yes, but the IRS FAQ's says no.

You bring up some great points, please look at the following I did and based on the IRS code section I believe it to be deductible.  Now I would print this entire answer and put it in your tax file for your records should it be questions later. 


The IRS FAQ and the IRS Publication 936, are using some of the same language however differing answers.  

This is from the IRS Publication 2017, page 9 third column, https://www.irs.gov/pub/irs-pdf/p936.pdf

2. You build or improve your home and take out the mortgage before the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 

When this happens I like to look at the code, which is Internal Revenue Code 163.

"Section 163(h)(3)(B)(i) provides that acquisition indebtedness is any indebtedness that is incurred in acquiring, constructing, or substantially improving a qualified residence and is secured by the residence. However, § 163(h)(3)(B)(ii) limits the amount of indebtedness treated as acquisition indebtedness to $1,000,000 ($500,000 for a married individual filing separately). Accordingly, any indebtedness described in § 163(h)(3)(B)(i) in excess of $1,000,000 is, by definition, not acquisition indebtedness for purposes of § 163(h)(3). "

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1 Reply
MichaelL1
Level 15

Can mortgage interest on a land loan be deducted if a home will be built on it next year? A prior answer on this forum says yes, but the IRS FAQ's says no.

You bring up some great points, please look at the following I did and based on the IRS code section I believe it to be deductible.  Now I would print this entire answer and put it in your tax file for your records should it be questions later. 


The IRS FAQ and the IRS Publication 936, are using some of the same language however differing answers.  

This is from the IRS Publication 2017, page 9 third column, https://www.irs.gov/pub/irs-pdf/p936.pdf

2. You build or improve your home and take out the mortgage before the work is completed. The home acquisition debt is limited to the amount of the expenses incurred within 24 months before the date of the mortgage. 

When this happens I like to look at the code, which is Internal Revenue Code 163.

"Section 163(h)(3)(B)(i) provides that acquisition indebtedness is any indebtedness that is incurred in acquiring, constructing, or substantially improving a qualified residence and is secured by the residence. However, § 163(h)(3)(B)(ii) limits the amount of indebtedness treated as acquisition indebtedness to $1,000,000 ($500,000 for a married individual filing separately). Accordingly, any indebtedness described in § 163(h)(3)(B)(i) in excess of $1,000,000 is, by definition, not acquisition indebtedness for purposes of § 163(h)(3). "

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