Help - Land Mortgage - Built Residence - Deductible?

[George Boutwell]

I really never thought of there being a problem with the pretty cheap 80 acres. My main question was just whether a land mortgage would be deductible if you built a home on it out of pocket within 3-4 months of closing on the loan, even though the loan wasn't originally "secured by the home".

So far no one has asked about the property's zoning and subdivision potential. If this is in an area where your neighbors own no more than five acres, and you could sell off parcels of that size, it would make a difference in how IRS and a judge would look at all "the facts and circumstances." On the other hand, if all of your neighbors have 160 acres and don't claim to be farmers or woodcutters, that also is critical information. Please, don't tell us. Our minds are made up.

I have yet to see a mortgage document that does not also attach its lien to improvements added to the real estate later. If you have one, it's a rare bird. The question you are asking is no different from someone buying a one-bedroom house with a mortgage and then adding another three bedrooms, a pool and a detached garage. Of course all of the interest is still deductible.

[LivinInUSA]

Thanks George. That makes sense. It's zoned AG, and the smallest lot anywhere near there is 10 acres. I haven't though about the contract saying that about future buildings, I'm sure it does.