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Level 2

Deductibility of closing costs and interest on construction loan.

In early 2017, I purchased land out of state. Later in 2017, I took out a construction loan that converts to a mortgage later this year when construction is complete. I plan to move to this new house in 2019. Am I able to deduct the interest payments and closing costs for 2017 and will I need to file a return in this other state?

6 Replies
Level 1

Deductibility of closing costs and interest on construction loan.

Yes, you can deduct the interest on your construction loan if the loan was secured by the property you moved into. 

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 is ready for occupancy. The 24-month period can start any time on or after the date that construction begins.

See page 4 under Qualified Home and Home Under Construction: https://www.irs.gov/pub/irs-pdf/p936.pdf

Level 2

Deductibility of closing costs and interest on construction loan.

Thanks. Do I need to file taxes in the state where the property is located? It's not the state I currently live in.
Level 1

Deductibility of closing costs and interest on construction loan.

Not to get the federal deduction.
Level 2

Deductibility of closing costs and interest on construction loan.

Thanks again.
Level 1

Deductibility of closing costs and interest on construction loan.

Sure.
Level 1

Deductibility of closing costs and interest on construction loan.

Since the 24 month period can begin at any point after construction begins, does that mean the points could be used as a deduction on the 2018 tax return (instead of having to be claimed as a deduction in 2017 when the construction loan was taken out)?