Are architect or permit fees considered part of "construction costs" for home equity loans?

Question

We plan to use a home equity loan to rebuild our studio, putting the loan money in a separate bank account and using that account solely for "construction costs" to ensure the interest remains tax-deductible.

Question 1: We're paying an architect to design the building and we have to pay the city a permit fee to review and approve the design. Are these two fees considered part of the "construction costs" of a building so we can use the loan to pay these without worrying about the IRS coming after us?

Question 2: Given this scenario, would it be wiser to use a Home Equity Line of Credit so we only borrow what we need when we need it? My concern (as always) is variable interest rates on the lines of credit, so I'd get a lower interest rate today, but it might be higher next year.

Thanks!

Joe

Answer 1

yes, of course., these are legitimate costs and can be put into the taxable basis of your house. I wouldn't go for a variable loan in this economy. Rates are on their way up, maybe way..... up. Go for a fixed rate conventional mortgage of no more than 30 years.

Answer 2

All items connected to construction of new whatever should be covered by construction loan. Ask your lending institution for this in black and white and put it with your records should the question ever arise. Never put your trust in "they" or "they said". Get it in writing so it is defensible.