are you a real estate professional? then the expenses (other than capital improvements to the property) would be deductible on schedule C. if not, here's the bad news.
you can include in the basis of the property the cost associated with improvements. since it was never rented, the mortgage interest becomes investment interest report on form 4952 schedule A. This is under IRS tracing rules. other expenses are investment expenses which are no longer deductible.
