How can road warriors get home ownership benefits?

[jgombos]

What is the name of your state? OH, NY, CA, all over the map.

Complicated situation -- What's the best way for a single contractor who lodges in a different state every 12 months to be able to deduct mortgage interest, and get out of capital gains in the end? Is it possible? By the nature of temporary duty (TDY), the job site is not within 50 miles of the workers residence (in fact the residence is typically in a different state from the work site), and the contractor is getting per diem to cover the travel expenses. If the contractor buys a home, "calls" that their primary residence, and then rents it out, is mortgage interest still deductible? Do they have to move into that house for two years prior to selling it? I would like to get a good understanding of what the IRS really defines residence as in this case - when in reality the taxpayer is nowhere on a permanent basis; and they move around indefinately.

 

[moburkes]

What is the name of your state? OH, NY, CA, all over the map.

Complicated situation -- What's the best way for a single contractor who lodges in a different state every 12 months to be able to deduct mortgage interest, and get out of capital gains in the end? Is it possible? By the nature of temporary duty (TDY), the job site is not within 50 miles of the workers residence (in fact the residence is typically in a different state from the work site), and the contractor is getting per diem to cover the travel expenses. If the contractor buys a home, "calls" that their primary residence, and then rents it out, is mortgage interest still deductible? Do they have to move into that house for two years prior to selling it? I would like to get a good understanding of what the IRS really defines residence as in this case - when in reality the taxpayer is nowhere on a permanent basis; and they move around indefinately.

I don't think you can.

 

[jgombos]

It looks like there are two options:

* The contractor buys a property, calls that their permanent residence while on TDY, and lets it sit vacant. I suspect they could then deduct the mortgage interest while it sits, since it's not an income property. They could possibly let family members live there (house-sit) for free, correct? Then they could take a job local to the house and live there for 2 years, right before selling it, at which point they're not subject to the gains tax.

* The TDY worker buys a rental property, collects rental income, effectively sacrificing the mortgage interest deduction, and later takes a local job and moves in for 2 years just before selling.

Those are both options, correct? It appears the only glitch is that mortgage interest cannot be deducted at the same time rent is collected. Or is it more complicated than that?

 

[LindaP777]

If the contractor buys a home, "calls" that their primary residence, and then rents it out, is mortgage interest still deductible?

I can answer this - ABSOLUTELY! It does not matter if the house is an owner occupant or an investment property, interest paid is 100% tax deductible.

 

[jgombos]

I can answer this - ABSOLUTELY! It does not matter if the house is an owner occupant or an investment property, interest paid is 100% tax deductible.

That's pretty encouraging. So a contractor can get rental income, deduct the interest, and also get out of capital gains by living in the place for 2 yrs? Sounds like the best path. The only trick will be live for 2 years in one place, and buy there; it would normally nullify the temporary duty (aka TDY, and thus the per diem) during that time, but suppose the temporary contractor lives at the home for a year on TDY, leaves the state and rents the house for 3 years, and returns for another one year contract before selling. Then a contractor could still accept the tax-free per diem, get all the deductions, and pocket the gains, only paying tax on the rental income and w-2 income, correct?

 

[LindaP777]

Check with your accountant and/or tax adviser.