mortgage interest?

[natiro]

Taxpayer wants to buy the vacant lot next to his personal residence with the intention of keeping it bare and using it as part of his yard. He anticipates that eventually he will sell both lots with the residence and that the addition of the second lot will greatly increase the value of his property. If he sells the properties together later, the vacant land will qualify, along with the residence, for the Sec 121 exclusion. The question is, if the land secures the loan, is the interest deductible as mortgage interest?

[Gretel]

I would take the mortgage interest as a deduction. It's part of his personal residence now and he doesn't have the intention of keeping it just for investment.

[Brian EA]

Taxpayer wants to buy the vacant lot next to his personal residence with the intention of keeping it bare and using it as part of his yard. He anticipates that eventually he will sell both lots with the residence and that the addition of the second lot will greatly increase the value of his property. If he sells the properties together later, the vacant land will qualify, along with the residence, for the Sec 121 exclusion. The question is, if the land secures the loan, is the interest deductible as mortgage interest?

As Gabriele says it is deductible,. It is considered a second lot "home". However when they sell it I doubt it would qualify for the Sc 121 exclusion.It would be capital gains tax.

[skhyatt]

Under the final regulations, vacant land may qualify for the exclusion if the sale or exchange of the physical residence takes place within two years before or after the sale of the vacant land. Reg. 1.121-1(b)(3)

[Mark Goldberg]

Both

I would deduct the interest as part of the interest on that one house not as a second home and I would claim 121 as long as it is not 100 acres or something.