It depends on the status of your Rental Property while you made repairs before it was sold.
If the property was available to be rented while you made repairs (even if you had listed the property for sale), you would report those costs (including mortgage interest) under Rental Expenses in the year that the costs were incurred.
However, if the property was not available to be rented (or you had no plans to rent it again), any repair costs you incurred would increase the basis of the property and should be entered as a separate Rental Asset (improvements), subject to depreciation, in the year you incurred the costs.
In this situation, the mortgage interest would be considered Investment Interest Expense. This is an Itemized Deduction on Schedule A.
Any repairs needed in order to close the sale may be included in Selling Expenses in the year of the sale.
When you report the sale, the adjusted basis of all Rental Assets (building and improvements) will be deducted from Sales Proceeds, as will any Selling Expenses. So if you capitalize your repairs this year, those costs will be included next year for the sale.
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