How Would You Structure This For Tax Purposes? - Posted by John Bryce

Posted by Rich on March 25, 2006 at 17:43:43:

Is there an easement against Lot 2 recorded on behalf of Lot 1 and is the house on Lot 1 draining its sewage into the septic system on Lot 2? In either case, I would expect that the septic system belongs with the house and not with lot. I’d also bet that the house and septic system were built at the same time.

You could legally combine the lots, which would make the divided basis a moot point.

How Would You Structure This For Tax Purposes? - Posted by John Bryce

Posted by John Bryce on March 25, 2006 at 10:33:59:

I am getting ready to purchase a house and vacant lot for $40,000 using funds from a HELOC secured by an investment property that I own.The IRS is very strict on how the interest from this type of HELOC can be deducted,so it’s strictly going to be used for expenses that qualify for and interest deduction,to prevent confusion come tax time.Other expenses related to the closing will be paid from my checking account.

Here’s where it get’s tricky…Two lots are involved,lot 1 has the house and lot 2 has the septic system.I would like these on two separate HUD statements.If I ever decide to place a septic system on lot 1 and sell lot 2,it will clearly show the basis for the two parcels.I feel like it’s an accessory to lot 1,because it supports the septic system.

Can I deduct the interest from the purchase of lot 2 on my schedule E?If not,the value of the property could support a purchase of the house for $35,000 and the lot for $5,000 if I need to play with the numbers.

Any help would be appreciated…