Discussion:Client buy land to build
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Discussion Forum Index --> Tax Questions --> Client buy land to build
| 21 March 2008 | |
| Client buys land to build vacation home in the future. Finances the land. How is the interest handled during the years the land is vacant. did not buy for resale but to hold and eventually build a second home
Neil | |
| 22 March 2008 | |
| how would you handle the maintenance on the land like mowing, insurance, taxes. are the misc 2% on schedule A | |
| 23 March 2008 | |
| Add to basis of the property, vacation home = personal use | |
| 23 March 2008 | |
| Taxes deductible Schedule A. Interest could be Investment interest(Form 4952)or added to basis. Other expenses(insurance, mowing) non deductible. | |
| 23 March 2008 | |
| What is client's intent? To build vacation home for personal use only or to rent? If for persoanl then I believe interest is non-deductible personal interest although I seem to remember something about it being deductible as construction interest if home built in the first couple of years (but my memory is foggy on this). Others can chime in on this.
If intent is to also rent then perhaps investment interest would fly. Recent IRS notice concerning 1031 exchange and safe harbor for vacation homes might be applicable. | |
| 23 March 2008 | |
| Maintenace and insurance would not be added to basis if personal home. | |
| 24 March 2008 | |
| Can't deduct home mortgage interest as a second home, because it doesn't have kitchen, sleeping and toilet. I think it's investment interest.
Tell them to dump a cheap trailer, no matter how old it is. Then you atke it as second home. Intent is everything, one could always change their mind latter. Take it as investment interest and be done with it. Is there any why you could deduct it on a Schedule E. | |
| 3 August 2008 | |
| I have a client with the same situation however they have permanently parked an RV on site. They are in the process of getting utilities and septic to the property and will hook up the RV until they are able to build. Can the interest on the land (and RV) now be taken deducted as a second home? | |
RoyDaleOne (talk|edits) said: | 3 August 2008 |
| You can not capitalize interest, real estate taxes, or carrying charges, on a personal residence, I don't know about vacation home that is rented as that is a hybrid, part personal part business.
Racyeo, I would think (99%) that the interest would be deductible. | |
| 4 August 2008 | |
| If asked by the IRS you would not want to say that the intention is to build a vacation home. You could argue investment interest until some point when taxpayer decides to build on it.
But based on what you have told us, I think it is personal interest. I dont think it is a second home at this point due to the lack of cover toilet etc. | |
| 4 August 2008 | |
| Not sure what you mean by lack of cover toilet etc. They do have the porta potty on the trailer and the intent is to hook the septic up to the trailer when it is installed later this year. Also, they have built a permanent deck around the trailer as they believe it will be several years before they build the house. To top it off, they spend every weekend in the trailer on the property. I think they could make a good case for a second home. | |
