They will need to keep accurate records of all the costs of building their home, for as long as they own the home, because that will be needed to determine what their capital gain is when they sell.
They can deduct real estate taxes paid on any property they own, including this building lot. If they have a construction loan, they can deduct the interest as if it was a mortgage, so long as the home is finished and the construction loan is converted to a true mortgage within 24 months. (If not, they will have to make corrective adjustments later.)
If they are paying sales tax for building materials and have receipts to prove it, they can deduct the sales tax (if they live in a state where it is better to deduct sales tax than state income tax). But they need receipts, they can't just assume that some percent of what they pay to the builder is sales tax on materials.
But the actual capital cost of building goes into the cost basis and is not deductible now.
