- quote -

Since the land doesn't have a home on it, it can't be
deducted as personal residence interest. Since you are
holding it for the purpose of building a home on it, it also
isn't investment property, so you can't deduct the interest
as investment interest. Thus, no deduction for interest
until you start construction, and then for no more than two
years of construction time.

The land cost is part of the basis of the property, along
with all the construction costs. It will figure in when you
sell the property.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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Here's the scenario.

A resident of Virginia buys a parcel of land in South
Carolina with intent to build a retirement home in two
years. Land is zoned for residential construction. Land
purchase is concluded in 2004 via a bank loan.

Question: How is the land purchase treated for tax purposes?
Is the loan deductible as mortgage interest, or is it
considered an investment property? When construction of the
home is completed and the home occupied how is the cost of
the land purchase treated? What IRS pubs provide info on
this situation?

Any information is appreciated. Thanks.

Curt K.

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