Can You Claim the Mortgage Interest Tax Deduction for Land?
Money Girl answers a question about claiming a tax deduction for interest paid on a land loan.
Q: I have a loan on property where I'm planning to build my dream home in the future. Can I claim a tax deduction for interest that I pay on the land loan?
A: There are several qualifications that you must meet in order to claim the home mortgage interest deduction. One of them is that your home or second home must be "a house, condominium, cooperative, mobile home, house trailer, boat, or similar property that has sleeping, cooking, and toilet facilities," according to the IRS.
However, you can also treat a home that's under construction as a qualified home for up to 2 years--but only if it becomes your home at the time it's ready for occupancy. The 24-month period can begin any time on or after construction begins.
So, you can't deduct the interest on your land loan now. But as long as the tax code doesn't change, when you break ground on your dream home you'll likely be able to take advantage of this money-saving tax break.