Having hosted a financial radio program over several years has exposed me to many questions. Some of these questions seem rather basic to me while others involve situations I havn't thought of on my own. I love to get questions, I really do. Questions are what make life worth living when one is a talk show host, especially when the goal is to have interaction with the listeners.

Just recently, I was asked a question on the air regarding construction loan interest. This listener had built a principal residence and like so many, used a construction loan to help with the financing. His question to me, "Is interest paid to construct a principal residence deductible as qualified mortgage interest expense?This caused me to do some research as the typical rule for construction period interest is that it be capitalized as part of the cost of the project. The normal sequence would be to include interest on a loan to acquire land as investment interest subject to those rules. Investment interest is deductible to the extent their is investment income (i.e. interest, dividends, and capital gains treated as investment income). The construction period interest, has we have just mentioned, would be added to basis of the building being constructed along with interest on the land (the project has gone from investment stage to construction stage).

When the project is complete, then there is normally a new loan that retires the land and construction loans as a mortgage against the property itself. This mortgage interest is then deductible based on the activity of the property. If it is business property, the mortgage is deducted as trade or business expense. If the property is a rental unit, the interest will be deductible in accordance with rental property rules. By special rule, the construction period interest for the building of a principal residence is deductible as qualified mortgage interest expense subject to the following. The construction loan must not precede the moving in and claiming of the new principal residence by more than two years. Meeting this requirement will give us the desired itemized deduction, on schedule A, of mortgage interest expense (IRS Publication 936).

The fun does not stop here. The next question, sent by email, involves making a charitable contribution with appreciated stock. One of our devoted listeners wanted to know how to handle the contribution of stock with a fair market value of $20,000 and a cost basis of $2,000. If he took the fair market value (FMV) of $20,000 would he have to pay capital gain on the difference between FMV and cost? The answer is no. He can use the FMV to take the charitable deduction but will be subject to a 30% adjusted gross income (AGI) limitation. This is to say that if his AGI is $50,000, the most he will be able to take regarding this transaction is $15,000. The remaining $5,000 can be carried forward for a period not to exceed 5 years. This listener could elect to take his cost basis as the charitable deduction thus subjecting him to a 50% AGI limitation. This would mean that he could take up to $25,000 in contributions for the current year but he would only get to take the $2,000 cost basis as the actual deduction. In this case, the FMV method is the best. Taking this deduction will require that form 8283 be filed with his 104. The good news is that he will not be required to get an appraiser's signature (required for non-cash gifts of $5,000 or more to one charity) as the stock is publicly traded.

What other questions will arise during 2007 and beyond? I do not know, I just answer the phone or look at the emails. As always, if you have a question, it is likely that someone else has it as well. Maybe your question will make the "Better Business" interaction page.