Are there a tax deductions for buying land?

[H800]

My wife and I bought a "lot" this past year and I'm wondering if I can deduct origination fees and/or interest paid?

[DDollar · Accepted solution]

The short answer is Maybe. 

Investment Property

If you borrow money to buy property you hold for investment, the interest you pay is investment interest. You can deduct investment interest subject to certain limits. Generally, your deduction for investment interest expense is limited to your net investment income.

You can carry over the amount of investment interest you could not deduct because of this limit to the next tax year. The interest carried over is treated as investment interest paid or accrued in that next year.

To deduct your investment expenses, you must itemize deductions on Schedule A (Form 1040). Enter your deductible investment interest expense on Schedule A (Form 1040), line 14.  Also attach a completed Form 4952 if you used that form to figure your investment interest expense.

In TurboTax you can enter it under Deductions and Credits > Retirement  and Investment > Investment Interest Expenses.

You must also complete a Form 4952- Investment Interest Expense Deduction.
http://www.irs.gov/pub/irs-pdf/f4952.pdf

http://www.irs.gov/pub/irs-pdf/p550.pdf

Property you bought to build a home on

You cannot deduct interest on land that you intend to build a home on, but some interest may be deductible when 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 is 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 within certain limitations may qualify as deductible mortgage interest.

[Sgstclergy]

Can I only write off the taxes?

[DaveF1006]

Yes, you can only write off the taxes. Any money you pay for land improvements are added to the basis of the land (price you paid for it) to reduce the capital gains on your land when you dispose of it.

[Soddygurl]

What about the land clearing and improvements (leveling of the house pad) can you deduct those expense and if so where?

[DianeW777]

No. These expenses are added to the cost of the property as indicated and reduce capital gain at the point of future sale.  Unless this property is used as a rental or other business activity, it remains investment property with the tax law applied as noted by @DDollar.

[crorella]

What if the land is intended for a house you want to rent/sell?
I purchased a land in Jan 2020 and paid a company to build a house. The construction started in September 2020 and it is about to be completed in a few weeks.
Can I write off:
- the amount I paid for the land?

- the amount I paid to the construction company?

Thanks

[crorella]

A clarification, everything was paid with cash (land and construction company) so there is no interest involved.
Also this house is strictly for business, I won't use it (nor my family) to live there.

[Hal_Al]

Q. Can I write off:
- the amount I paid for the land?

- the amount I paid to the construction company?

A. No.  More accurately: not this year.  The cost of land and the cost to build your "asset" are capital expenditures and become your cost basis for when you sell the property in the future.  The house is depreciated (written off)  over the next 27.5 years (assuming your "business use" is as a rental).  Land is not depreciable. 

[Binzy899]

Are homeowners dues on a vacant lot held for resale deductible?

[Hal_Al]

Q.  Are homeowners dues on a vacant lot held for resale deductible?

A.  No.  Investment expenses* are  no longer deductible.  Even in the "old days" (prior to 2018), investment expenses were only a misc. itemized deduction.  You only got to deduct that portion of  your misc. itemized deductions that exceeded 2% of your AGI,  and then only if your total  itemized deductions exceeded the standard deduction (which was doubled under the 2018 tax law. .  (2% rule explained: https://ttlc.intuit.com/questions/2902781-what-is-the-2-rule ).

*Investment interest  is deductible, as an itemized deduction, but only to the extent of investment income,

[TomK100]

Yes, you can only write off the taxes if you itemize.  Just remember that you can only deduct a max of $10,000 for taxes paid if you itemize.  The cost of the land and any improvements are capital expenditures and become your cost basis for when you sell the property in the future.  

@H800