Whether you can deduct the interest on the purchase of hunting land depends on the use of the land and the way in which it is purchased. Consider the tax deduction of the interest before you make your next hunting land purchase. The decision can make the difference between paying a tax balance or getting a refund.
If the hunting land is attached to a primary or secondary home purchase, the interest is deducted on Schedule A. For years 2010 through 2013, there is no limitation to the amount of itemized deductions you can accumulate to offset your income, but otherwise the deduction is limited, based on your adjusted gross income. Analyze your long-term financial picture to determine if buying land as part of a home mortgage will help you.
The purchase of real estate for the secondary purpose of hunting may still be tax deductible if the primary purpose is to hold the property as an investment or business interest. If you purchase hunting property as a business interest, you are required to keep business records and to show a reasonable effort to make a profit. Consider if the effort and potential additional cost of improvements and accounting fees are worth the tax savings.
Recreational property is specifically for what hunting is all about. The IRS provides no interest deductions for recreational property loans, but you can still recoup the purchase price if you sell the land at a later date. Meanwhile, you can deduct property tax on your federal tax return.
One way around losing the interest deduction on recreational land is to purchase the land with a home equity loan. Home equity loan interest up to $100,000 is a tax deduction on Schedule A of your personal tax return. The danger is that your home is held as security for the purchase of the hunting land. In the event of default, you are in danger of losing your home.
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