Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Helping a friend here.
He owns two properties. One is a quarter acre in town with a dwelling in which he lives. This one has a 1098 issued by the lender with approximately $2,000 in mortgage interest.
The other is 20 acres of empty land way outside of town. A 1098 has been issued (by the same lender) with approximately $8000 interest.
His ultimate intention is to build on the larger property and live there.
Both were purchsed in late 2009.
He has been told by someone purporting to be a tax professional that BOTH amounts are deductible as home mortgage interest. I am questioning this.
My friend, obviously, prefers the "professional" opinion which alloows the much larger deduction.
Could someone jump in with an opinion and maybe even reference citations?
Thanks
gsgreen
Print the post Back To Top
No. of Recommendations: 3
He owns two properties. One is a quarter acre in town with a dwelling in which he lives. This one has a 1098 issued by the lender with approximately $2,000 in mortgage interest.
The other is 20 acres of empty land way outside of town. A 1098 has been issued (by the same lender) with approximately $8000 interest.
His ultimate intention is to build on the larger property and live there.
Both were purchsed in late 2009.
He has been told by someone purporting to be a tax professional that BOTH amounts are deductible as home mortgage interest.


Yeah, well....

The vacant land interest isn't deductible as home mortgage interest since, wait for it, there's no home, which must have eating, sleeping and toilet facilities. If he puts a junker Airstream on it he's in business. Likewise once he starts construction. The reference is Pub 936.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 0
Thanks. That's sort of the way I was reading it too.
Can you think of any way that the vacant land interest might be deductible? I realize that if he was in the business of buying and selling property, the interest would become a business expense. But, he just owns it with future plans for development for personal use.
Print the post Back To Top
No. of Recommendations: 0
Cooking, sleeping, and toilet facilities don't have to be much--one room with a bed and a campstove. Outhouse qualifies as toilet facilities. Get something similar to this: http://eastidaho.craigslist.org/rvs/2180594270.html. Get a suitably-sized generator from Lowe's/Home Depot. Now the land is no longer vacant and he has a place to stay during construction.

Kathleen
Print the post Back To Top
No. of Recommendations: 0
It might be "investment interest" IF he has enough interest and dividends to offset oart.
Also since it is vacant land he can capitalize the interest and taxes so they aren't a total loss.
Print the post Back To Top
No. of Recommendations: 0
Looks like we're all on the same page. Thanks everyone for your input.
gsgreen
Print the post Back To Top
No. of Recommendations: 0
Can you think of any way that the vacant land interest might be deductible?

Perhaps he's started construction - is there sewer system installed? Water/well? Power? driveway put in?

The way I read 936 he could be claiming construction for 24 months (assuming it does become his qualified home)

So I think he could probably claim construction, buy a $500 camper to park on the land, along with something for a toilet facility, and have no worries if it did get audited/challenged by the IRS.
Print the post Back To Top
No. of Recommendations: 1
I think he could probably claim construction, buy a $500 camper to park on the land, along with something for a toilet facility, and have no worries if it did get audited/challenged by the IRS.

Since his ultimate plan is to build a home, it would not be a good idea to start the construction clock until he's ready to build. With something on the property that could be called a home, there would be no need for construction in addition to make the interest on the land note deductible.

Phil
Print the post Back To Top
No. of Recommendations: 0
Since his ultimate plan is to build a home, it would not be a good idea to start the construction clock until he's ready to build.

Why?

Only problem I can see is if you move the trailer off while building the house. (which shouldn't be necessary with 20 acres)

With something on the property that could be called a home, there would be no need for construction in addition to make the interest on the land note deductible.
except there wasn't a home on there in 2010 - so how do you deduct 2010's interest other than via construction?
I suppose you could lie about when the trailer got parked on the property - but I wouldn't expect you to suggest that.
Print the post Back To Top
No. of Recommendations: 1
Since his ultimate plan is to build a home, it would not be a good idea to start the construction clock until he's ready to build.

Why?


Because he gets only 24 months from the start of "construction" until occupancy as a home.

However, I now see where you were headed. I had considered 2010 a lost cause and was looking only forward. You were trying to figure out a way to make 2010 interest deductible, and once the trailer was on the lot there would no longer be a need for the 24 months since the owner would be "improving" his current qualified home.

I can't see a tax problem, and with 20 acres in the middle of nowhere, neighbors' complaints about the trailer shouldn't be a problem either.

Phil
Rule Your Retirement Home Fool
Print the post Back To Top
No. of Recommendations: 0
So I think he could probably claim construction, buy a $500 camper to park on the land, along with something for a toilet facility, and have no worries if it did get audited/challenged by the IRS.

I think it is worth mentioning that in many places you would not be allowed to use this approach. Zoning laws are very localized and diverse, and can be quite restrictive.
Print the post Back To Top
No. of Recommendations: 0
I think it is worth mentioning that in many places you would not be allowed to use this approach. Zoning laws are very localized and diverse, and can be quite restrictive.
Zoning laws are localized and diverse, and can be restrictive.
OTOH, 20 acres is a good sized parcel - so in probably most 20 acre parcels you can park your camper on your land without it violating a zoning ordinance.

Of course the sensible thing to do is to make sure that it doesn't look like an abandoned vehicle - and make sure it's not an eyesore for the neighbors - and that is IMO key. The neighbors are going to be the ones that could call code enforcement.

BTW: it's important to note that this is "allowed" by the IRS - which is all that matters on the tax forms... It's just that you might be required to remove the camper if there were a zoning restriction that prevented you from parking it on your property. Abandoned vehicle ordinances are the ones most likely to be a possible issue - but usually it's pretty flagrant violations that those get applied to - ex. 1970's sedan up on blocks
Print the post Back To Top
No. of Recommendations: 0
In reviewing all the responses to my initial question, it looks like everyone is essentially on the same page. Wonder of wonders, this must be part of the tax code that is pretty well cut and dried :)

As a note, there are no zoning issues in regards to campers and/or trailers here. We're talking a very large county that is very rural and very thinly populated with over 50% being national park/forest and/or reservation land. Basically, there ain't nobody to complain even if there is some obscure county code. Heck, we're so rural we're even allowed to self inspect and re-certify on our tri-annual septic inspection and re-certification. That is, as soon as they pass a rule actually requiring the said inspection and re-certification.

Thanks to everyone. My concern had been that I was missing something that the person who was coaching me knew and I didn't. Based on everyone's replies, I wasn't.
Print the post Back To Top