Requirements for tax-deductible loans
Question: We borrowed some money to build a house last November. Are the interest payments on the construction loan taxdeductible?
Answer: Yes, as long as you meet a few basic Internal Revenue Requirements.
First, the loan must be secured by the property itself. If it’s an unsecured (personal) loan, the interest is not tax-deductible. Generally, the IRS also requires that the home be completed within 24 months and that it becomes either your personal residence or your second home as soon as it is ready for occupancy.
There are some details and the usual IRS minutiae involved, so it’s important to consult an accountant or other tax professional before you file your upcoming tax-return.