Deducting Interest on Land Purchase for Second Home

[Kram BergGold]

Client is buying a second home. She is going to borrow the money to purchase the land. Here is the IRS' response to the question of destructibility:

http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Itemized-Deductions,-Standard-Deductions/Real-Estate-(Taxes,-Mortgage-Interest,-Points,-Other-Property-Expenses)/Real-Estate-(Taxes,-Mortgage-Interest,-Points,-Other-Property-Expenses)-1

I am interpreting this to mean that the land purchase starts the construction process. The taxpayer can choose any 24 month period starting with the land purchase to deduct construction interest. Prior to reading this IRS FAQ, I would have said that the taxpayer could not start deducting interest untill some actual construction began. I guess the idea is once you own the land you could go out there with a shovel and did a small hole and say that is the start of the foundation so the IRS just says the land purchase starts the process. Any thoughts?

[New York Enrolled Agent]

[QUOTE=Kram BergGold;157663]I am interpreting this to mean that the land purchase starts the construction process. QUOTE]

I don't think that is a correct conclusion. The construction process begins when "it really begins" - not with the acquistion of the land. Look at TD 8168 which contains the temporary regulation §1.163-10T(p)(5) and the example where the mortgage on the land is secured on April 20 and the construction begins on August 9.

[Roland Slugg]

... once you own the land you could go out there with a shovel and did [sic] a small hole and say that is the start of the foundation so the IRS just says the land purchase starts the process.

The IRS says nothing of the kind. In the link you furnished it says, "The 24-month period can start any time on or after the day construction begins." (Emphasis added.) The start of construction is a factual matter based on a realistic occurrence.