Interest on vacant land

If you buy a piece of vacant land for investment purposes, you may want to know about eligible write-offs for expenses including mortgage interest.  

In general, expenses incurred to generate income are tax deductible. However, when it comes to vacant land, which does not generate any income, expenses such as mortgage interest, property tax, etc. cannot be written off in your current year. Nor can they be capitalized and added to the cost of land to reduce future capital gains.  

One solution is to find a tenant and charge a nominal rent. This may be as simple as a tenant renting a parking spot for their truck on the land. The land, therefore, becomes an income-generating property. You can now deduct expenses up to the income you earn from the land in that fiscal year. The rest of the expenses pertaining to the cost of the land may then be accumulated over time. They can then be used to reduce your capital gains in the future, when you sell the land.