Investment Interest On Land and Construction 4952

[SFBOB]

Client was building a house for rental. Original loan interest on the purchase of the land and addtional interest on a construction loan was reported on from 4952 for the last 2 years.
House is now complete and the owner has decided to move in and use it as his personal residense.Any thoughts on how the interest an be written off in 2010. The house is now complete and the client has moved in. I understand that investment interest can be used as a deduction against income from interest,dividends and capital gain. Any good ideas to help my client get a deduction NOW will be appreciated. Have a good day. Bob

[Nashville]

Out of Luck

If it was not intended to be his personal residence when built, the interest during this construction period should have been capitalized into the basis of the building. It never should have been deducted on 4952.

Now that he has changed his mind (I've got to wonder whether this really happened) and all of sudden he wants to live in the house he supposedly built for others, then he can use the ongoing interest from the point of occupancy forward as a deduction on Schedule A, but under conventional interest and not on a 4952.

My guess is that someone told him (I hope it wasn't you) that if he claimed he was building for rental property, he could deduct the interest, and so he told his preparer he was building it for rental and not for personal residence. Sometimes when I ask my clients a question as to use, they answer "Which way gets me the lowest taxes?" and I tell them I won't go down that road with them (unless of course it is a perfectly allowable taxpayer election).

[SFBOB]

Thanks Snag

Thanks for the suggestion on Don Henderson. My clients daughter is planning on an interview with Don and and attorney he suggested.This current question was regarding a gift of the mothers home in Tenn, that she purchased for her daughter to live in while attending college.
My 4952 question was for an associate that buys The Tax Book, however is too busy to Blog. I did not make the 4952 decision Thanks Again Snag. Have A Good One Bob