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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I have a contractor's license in Wisconsin. Question - Can I

Customer Question

I have a contractor's license in Wisconsin. Question - Can I buy a lot, build a house (all under the business) and rent it to myself after completion?
If I can't rent it I could buy, but I don't see an advantage in buying it. I have money to do this without a bank.
I'm goal is to decrease my income this year by deducting at least the lot and build next spring.
Can I deduct the lot (and/or materials) prior to completion? I believe the expense can be deducted in the year accrued.
Submitted: 11 months ago.
Category: Tax
Expert:  ABC Accounting Group replied 11 months ago.

Hi. Great Questions.

Right now, you are considered an Investor, for tax purposes.

You are entitled to deductions for many or your investment expenses as personal itemized deductions on Schedule A.

Any interest you had paid on any $'s borrowed to purchase the vacant land is investment interest that can be deducted as an itemized personal deduction. However, the annual deduction for investment interest is limited to the your net investment income for the year. Any excess is carried over to future years. You determine the amount of your net investment income by subtracting your investment expenses (other than interest expenses) from your investment income.

For example: an individual purchases a vacant lot on which he pays annual property taxes of $1,000 and interest of $2,000. His only other investment is a savings account, which earns $2,000 in annual interest. His net investment income is $1,000 ($2,000 interest income – $1,000 property tax expense = $1,000). Thus he may deduct only $1,000 of his interest expense. The excess $1,000 is carried over to future years.

You can also deduct property taxes paid on vacant land as a personal itemized deduction on Schedule A. This deduction is not limited to the amount of net investment income.

Other deductions relate to other carrying costs such as legal and accounting fees, insurance, and travel expense are also deductible on Schedule A. However, they are deductible only as miscellaneous itemized deductions. This means that they can be deducted only if, and to the extent, they exceed 2 percent of the taxpayer’s adjusted gross income.

If you turn the property into a rental property, you will be able to deduct costs from the rental income you receive, on Schedule E, as long as you are actively participating in this rental activity.

If you have any questions, let me know. Thanks.

Customer: replied 11 months ago.
Sorry, didn't answer my question. Maybe it wasn't clear. There will be no interest - all cash. Forget about the rent, it's confusing the question. I have a construction business. I want to Build a home through the business. Can I deduct the expenses (lot and material) in the year accrued? That's all I really need to know.
Expert:  ABC Accounting Group replied 11 months ago.

Sorry for the confusion. These are therefore Schedule C expenses - one of the questions on the schedule asks if you are on the accrual or cash method. If you are on the accrual method - you can deduct the expenses in the year accrued.

Let me know if this addresses the question. Thank you.