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Can interest on a construction loan be deducted from taxes?
- When building real estate, most builders use a construction loan, which is replaced by a mortgage once the construction work is complete.
- At both the federal level and in most cantons, construction loan interest is considered an investment cost. This means that it cannot be deducted from taxable income like debt interest. Instead, they are only taken into account when the property is sold as part of the real estate gains tax.
- To avoid this tax delay, a regular mortgage can be taken out on an existing property instead of a construction loan, which then finances the construction of the new property. The interest on this mortgage is immediately deductible from taxable income.