Federal income taxes - Interest paid on the construction of a new residence is generally deductible in the year the interest is paid. If the buyer provides construction financing, the buyer may be able to deduct the interest and save taxes. If the builder pays the financing, the interest is included in the purchase price and cannot be deducted by the buyer. Check with a knowledgeable attorney or CPA in your area to see if this strategy makes sense.

Federal Tax Planning - Buyer construction financing:	Builder Financing	Buyer Financing	Saving to Buyer
Land	30,000	30,000
Construction Cost	120,000	118,000
Cost to Finance		2,000
Total	150,000	30,000
Tax savings from interest deduction (assumes 28% bracket)		560	560

If the buyer finances the home, the interest may be deductible, resulting in immediate tax savings. Consult an attorney or CPA.