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Category: Tax
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I am looking to purchase some land that I will use to eventually

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I am looking to purchase some land that I will use to eventually build a house on for retirement. I live in NJ and the land is in Delaware. After buying the land, I may take some trees down, and put in a well right away, but not add a house for 5 - 10 years after buying the land.

My house in NJ is almost paid up. If I take a home equity loan on my house to get the money to buy the land, is the interest tax deductable considering I do not have a house on it. If not, can I treat the purchase as an investment and deduct the interest that way. Do I need to tell the bank what I am using the money for and will that effect the rate I could get?

The amount I would be financing would be about $120,000.

Submitted: 5 years ago.
Category: Tax
Expert:  CGCPA replied 5 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.


If you take a land loan and do not build right away, the interest on the land is not deductible in the year paid but gets added to the cost of the property which will serve to reduce your gain at some time in the future when it is sold.


If you take a home equity loan against your house the interest will be deductible on your tax returns in the year in which the interest is paid. That seems like a more feasible approach.


As a minor aside, raw unimproved land is taxed lower than improved land. So for now that is a lower cost way to go (for property taxes). You may also wish to look into someday getting the land deemed a farm when you build on it. Farms have lower property tax rates than residential property. You will need to check on local regulations for that.

Customer: replied 5 years ago.
Is there a limit to the amount that could be financed via a home equity loan. I thought I read somewhere that it was limited at $100K.
Expert:  CGCPA replied 5 years ago.

The limit is $100,000 ($50,000 if married filing separate.This limit is imposed on the debt itself. So if you have a home equity loan for $125,000 then 80% of the interest is deductible (100,000/125000=.8 or 80%).

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