Can I deduct interest on a construction loan used to build a rental property? Construction started in 2021 but will not be complete until 2022.

[LeonardS]

Yes, you may deduct the construction loan interest for your second home so long as the home becomes your main home or second home on the day it's ready for occupancy.  You can deduct all the interest you paid on the construction loan within 24 months before the home was completed.

[Mike9241]

property built for rental is not a second home.

The IRS rules governing deduction of interest on commercial construction are a little tricky. If you're constructing a building that you intend to rent out -- an apartment complex, for instance -- you will normally secure financing prior to beginning construction for such things as permits, surveys, soil reports and architectural and engineering fees.

The IRS treats interest that accrues on the money you draw from the construction loan until actual construction begins as a current business expense that is fully deductible against income in the tax year the interest is paid. Once construction begins, it is not deductible. This includes both the interest on amounts drawn before construction and amounts drawn during construction.

Once construction ends, all further interest payments become fully deductible as a current business expense.