Construction interest that is intended for rental or business use cannot be deducted at the time it is paid. Instead, the interest is simply added to the cost basis of your rental property.
The total amount is called Adjusted Basis (so not just rental cost, but cost plus your loan construction interest and other pre-rental expenses). Once the property is available for rent, you may start depreciating the rental property and use the Adjusted Basis.
The interest you pay once the construction ends and the property is offered for rent, is deductible as mortgage interest expense, on your rental property, in the year you pay it.
