Posted on: 14th Feb, 2007 11:49 am
i have a mortgage for the house and a second mortgage for the land where i would be building a new home. is the interest for the 2nd mortgage be deductible?
Hi Harry,
Welcome to Mortgagefit forum.
The interest you pay for the 2nd mortgage will not qualify as being a deductible mortgage interest unless construction has started on the land. Plus you should be able to occupy the new home within twenty four months.
Otherwise, the land will be considered as an investment and if you itemize your deductions it would represent investment interest.
Colin
Welcome to Mortgagefit forum.
The interest you pay for the 2nd mortgage will not qualify as being a deductible mortgage interest unless construction has started on the land. Plus you should be able to occupy the new home within twenty four months.
Otherwise, the land will be considered as an investment and if you itemize your deductions it would represent investment interest.
Colin
What does it mean to itemize deductions?
Evan,
When you fill out your tax returns, you put in your W2 income for the year. Then you list your charitable giving, state income taxes you've paid, etc. Stuff that brings your W2 income down so you pay less taxes. The things you list (or itemize) are totalled and the government let's you take the GREATER of the things you listed or the standard deduction.
What colin is communicating here is that if you don't list or itemize enough to total more than the amount the government gives you already, then the mortgage interest is just another item to list which may or may not push your total higher than the government's standardized adjustment.
He's just giving a word of caution.
When you fill out your tax returns, you put in your W2 income for the year. Then you list your charitable giving, state income taxes you've paid, etc. Stuff that brings your W2 income down so you pay less taxes. The things you list (or itemize) are totalled and the government let's you take the GREATER of the things you listed or the standard deduction.
What colin is communicating here is that if you don't list or itemize enough to total more than the amount the government gives you already, then the mortgage interest is just another item to list which may or may not push your total higher than the government's standardized adjustment.
He's just giving a word of caution.
Thanks Ken for explaining it, your method of explaining things is excellent. :)
Colin
Colin