Mortgage for newly custom build home

[lyjosh_1958]

If a newly constructed home was completed in 06-2020 and was self financed by the homeowner to build and a mortgage was acquired on the home in 06-2020 to pay off the self financed construction loan, is the mortgage considered a mortgage to purchase the home? Or, is the mortgage considered a home equity loan?  Are the mortgage interest and points deductible? 

[Cynthiad66]

It can be deductible if it the mortgage was done with 90 days of the purchase date.

From IRS pub 936 - Mortgage treated as used to buy, build, or improve home.

 - A mortgage secured by a qualified home may be treated as home acquisition debt, even if you do not actually use the proceeds to buy, build, or substantially improve the home. This applies in the following situations.

1. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements.

Mortgage treated as used to buy, build, or substantially improve home. A mortgage secured by a qualified home may be treated as home acquisition debt, even if you don't actually use the proceeds to buy, build, or substantially improve the home. This applies in the following situations. 1. You buy your home within 90 days before or after the date you take out the mortgage. The home acquisition debt is limited to the home's cost, plus the cost of any substantial improvements within the limit.  2. You build or substantially 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.

You generally can't deduct the full amount of points in the year paid. Because they are prepaid interest, you generally deduct them ratably over the life (term) of the mortgage. See Deduction Allowed Ratably next. If the loan is a home equity, line of credit, or credit card loan and the proceeds from the loan are not used to buy, build, or substantially improve the home, the points are not deductible.

[Opus 17]

The mortgage can count as acquisition debt so long as it is secured by the home and perfected -- this usually means it must be listed at the county clerk's office as a lien on the property.  A personal loan would not count, even if used to buy or build a home.  And the loan must be obtained within 90 days before or after you completed construction.