I'm renting a home now but will be purchasing land on which to build a home. Can I deduct the interest on the land mortgage?

I'm renting a home now but will be purchasing land on which to build a home. Can I deduct the interest on the land mortgage?

Timing is everything here. Interest related to home constructions depends on when the construction begins. Interest on a loan taken out before construction begins is nondeductible personal interest. Interest may be fully deductible from the time construction begins up to 24 months while construction takes place (the loan is treated as acquisition indebtedness up to $1 million). Interest after the 24-month period again becomes nondeductible. Take this example: You purchase the lot with a land mortgage on July 1, 2009. You start construction on February 1, 2010, using your own savings; you complete the home on January 31, 2011. None of the interest paid in 2009 is deductible because construction has not started; none of the interest for January 2010 is deductible as well. All of the interest during the 24-month period of construction is deductible, as is any interest after that when you occupy the home as your residence. If, however, construction is not completed by January 31, 2011, then interest after that date until occupancy is nondeductible.