No. It's not rental property until you "place it in service" (make an effort to get a tenant). If your intent is to live in one half and start renting out the other side, when you get there; you have two property units for tax purposes. One is a 2nd home. Mortgage interest and property taxes are deductible on Schedule A. The other is investment property.
Until
you put it to use as your primary or second home or as rental property, or sell
it, you have an investment property. The carrying costs (e.g. insurance
& utilities) of investment property are deductible as investment expenses,
but are subject to being a misc. itemized deduction also subject to the 2% of
AGI threshold. Real estate (property) tax may be deducted on
schedule A, under taxes, without regard to the 2% rule.
Alternatively,
taxpayers can elect to capitalize (add it to your cost basis) the
carrying costs of unimproved and nonproductive real property, real property
under development or construction and personal property before its installation
or use (Regs. Sec. 1.266-1(b)(1)). The election is made with the tax
return by its due date, including extension, by attaching a statement. You
cannot wait until you sell the property, but must make that election each year.
Attach the statement to the return and write “Filed pursuant to section
301.9100-2” on the statement.
Mortgage interest is only deductible to the
extent of other investment income and not subject to the 2% of AGI rule,
but can be capitalized.
