Deductibility of closing costs and interest on construction loan.

[gguerrero61]

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?

[JulieH1]

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

[gguerrero61]

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

[JulieH1]

Not to get the federal deduction.

[gguerrero61]

Thanks again.

[JulieH1]

Sure.

[hobfam07]

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)?