Since
this was purchased as an investment to fix and resell, you add the carrying
costs including mortgage interest, property taxes and rehab expenses to the
basis of the property. When you sell it, all of these costs (and others from
the purchase) become part of the adjusted basis for determining gain or loss on
the property. Property taxes are added to the basis and are not deductible
on Schedule A since they are considered a business expense, not a personal one,
because of the status as an investment property.
