Mortgage Interest and Insurance During Renovation

[lindan86]

Hi I purchased a house in September 2021 for the purpose of rental. I started renovation on this house right after closing and the renovation lasted about a year. In September 2022, the property is available for rent. However, my mortgage interest  and insurance for 2022 is for the entire year, while my rental income is only four months, from Sep to Dec 2022. My question is should I capitalize the mortgage interest from Jan to Aug 2022? How about mortgage interest I paid in 2021? Thanks. 

[DavidD66]

The mortgage interest you paid in 2021 the period in 2022 up until the property was made available for rent should be added to the cost basis of your rental property.  

[lindan86]

Thank you. Can I also capitalize all the utilities payments as well as insurance I made during renovation to my cost basis of the property? 

[DavidD66]

Yes, you can also include in your cost basis the utilities and insurance costs incurred during the renovation.  Once the property was made available for rent, those costs are deductible expenses and should be included on Schedule E.