Deducting construction loan interest

Forum|Forum|5 years ago
February 12, 2021
2 replies
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In 2020 I paid 1) mortgage interest on the home I currently live, and 2) mortgage interest on a construction loan for a home that we are building and will move into in 2021. I did not receive a 1098 for the construction loan. Can I deduct both mortgage interest payments on my tax return?

linaj20201

Level 14

Yes, you can.

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. I would still suggest you to contact your bank to verify whether you will receive the Form 1098. As IRS also receives a copy of the form, it is important to report it correctly on your taxes so to match IRS' record. If they will not send you one for whatever reasons, and if you did pay your mortgage interest during 2020, you will still be able to claim it on your tax return. Here are steps:

In TurboTax online,

Sign in to your account, select Pick up where you left off
At the right upper corner, in the search box, type in "1098" and Enter
Select Jump to 1098
Follow prompts

Note that your mortgage interest might not change your total tax refund. It will only change if your total itemized deductions including the mortgage interest exceeds your standard deduction. In the TurboTax program, when you enter itemized deductions such as mortgage interest, property taxes, medical expenses, charitable contributions, all of these items are added together. Unless the total of itemized deductions exceeds the standard deduction for your filing status, you would not see any change in tax due or refund.

lz06Author

Level 2

Thanks but I haven’t moved into the home yet. I will this year when it’s completed. Does that change anything?

lz06Author

Level 2

The simple answer is yes you can. LinaJ2020 gave you an excellent overview of the mortgage issue with a home you intend to occupy. As stated above, you have 24 months to move in.

Thank you!

Question on the outstanding principle balance (per turbotax, "If you took out the loan in 2020, please input your original loan balance"). I'm wondering if my original principle balance is the entire construction loan amount (because even though on the loan acquisition date i will have drawn zero, I'm technically still obligated to eventually draw the entire thing)? Or is it just the amount you have drawn as of the acquisition date?